Northern Ireland: Corporation Tax
	 — 
	Question

Lord Lexden: To ask Her Majesty's Government whether, following their recent review, they propose to devolve responsibility for corporation tax in Northern Ireland to the Northern Ireland Executive.

Lord Newby: My Lords, a joint ministerial working group on rebalancing the Northern Ireland economy is currently examining the issues associated with the potential devolution of corporation tax. This group has made good progress but there remain some crucial areas where differences of opinion between the Northern Ireland Executive and Her Majesty's Government still exist. The group is due to meet again later this week to continue the discussions.

Lord Lexden: I thank my noble friend for his Answer. As this prolonged review finally draws to a close, will he confirm that the Government remain wholly committed to rebalancing the Northern Ireland economy in order to enlarge private sector wealth creation? Will he tell us the last issues that still remain to be resolved by the ministerial group? If the Government decide not to transfer corporation tax to the Northern Ireland Executive, what contingency plans do they have to stimulate the private sector in other ways?

Lord Newby: My Lords, I can confirm that the Government are committed to rebalancing the Northern Ireland economy. The remaining issues, not surprisingly, are financial, and essentially there are two. The first relates to the initial reduction of the block grant, which follows from any devolution of corporation tax to Northern Ireland. There is something called the Azores criteria, which means that if a devolved Administration take full fiscal responsibility for a tax change, they must face a reduction in their block grant equivalent to the current corporation tax take from firms based in Northern Ireland. The second point is about how you deal with the ongoing adjustment over time to take account of inflation. At this point, it is far too early to say what will happen if the working group does not reach a positive conclusion.

Lord Empey: My Lords, first, will the Minister confirm that in the event of the devolution of corporation tax-setting powers to Northern Ireland, the Assembly could set different rates of tax for larger and smaller businesses? Secondly, will the Minister agree that the case for the devolution of these powers is stronger than equivalent demands from the Scottish Government and that Her Majesty's Government will not be influenced by the campaign for Scottish independence when reaching their decision?

Lord Newby: My Lords, I can confirm that, as the current UK corporation tax system has different rates for smaller and larger businesses, it would be possible in principle if corporation tax were devolved to the Northern Ireland Assembly for two rates to obtain in Northern Ireland. I agree that the argument in favour of the devolution of corporation tax to Northern Ireland is of a different nature to the devolution of corporation tax to Scotland because of the proximity of the Republic of Ireland, which of course has a significantly lower corporation tax rate.

Lord Roberts of Conwy: Will my noble friend take on board the fact that Wales, too, would like to have the power to give variable rates of corporation tax?

Lord Newby: My Lords, of course, considerations of consequentials to Wales are always uppermost in the Government's mind.

Lord Kinnock: In view of the Government's ambition to withdraw from certain obligations of membership of the European Union, are they contemplating the possibility that the devolved Administration in Northern Ireland could cut corporation tax to the much lower level that is customary in the Republic of Ireland?

Lord Newby: My Lords, that is exactly what this whole process is about. The complication, as I said earlier, is that if you devolve Northern Ireland corporation tax rate-setting to the Northern Ireland Assembly, you face a significant financial cost to the Northern Ireland budget, which, when last estimated by the Treasury, was thought to be in the region of £300 million.

Lord Alderdice: My Lords, as I listen to the somewhat siren voices on all Benches, I seek reassurance from my noble friend that the interests of the people and of the economy of Northern Ireland will not be set aside because of excessive rigidities in Her Majesty's Treasury on the one hand, and inappropriate comparisons with other parts of the United Kingdom that do not have, and I trust will continue not to have, an international frontier, on the other.

Lord Newby: Absolutely, my Lords. The key question, as I was just explaining, is financial and is about the consequences for the Northern Ireland Executive's budget if the tax is devolved. I think that is recognised within Northern Ireland. A recent poll by the Belfast Telegraph showed that, although 30% of those questioned were in favour of this move, a higher number-some 34%-were against it, and an even higher number did not have a view. That just demonstrates that this is a very complicated issue. On the second half of my noble friend's question, Northern Ireland is clearly in a different position from that of the other nations and regions of the UK, simply because it does not have a land frontier with them but has a land frontier with the Republic of Ireland.

Lord Reid of Cardowan: My Lords, of course this is an extremely complex question, not least because of the implications, as the Minister pointed out, of the Azores judgment and the potential burden on the Exchequer of Northern Ireland. In all these deliberations, will the Government bear in mind that Northern Ireland truly is a unique case, not only because of its border with another sovereign state-it is the only nation in the United Kingdom to have one-but because of the decades of very difficult and dangerous circumstances through which its people have come and because of the economy's and employment's ultra-high dependency on public expenditure in Northern Ireland? Will the Government at least look for some additional spark to move the dynamism of the private sector in Northern Ireland for the benefit of all the people there?

Lord Newby: The Government absolutely acknowledge that Northern Ireland is a unique case. That is why, while the whole issue of regional aid in the EU is being looked at at the moment, the Government are working very closely with Northern Ireland officials to consider how best to make the case for Northern Ireland receiving assisted-area coverage over and above that which would normally be provided for the rest of the UK.

Lord Trimble: My Lords, will the Minister tell me whether the Government have obtained assurances from the European Commission that it will not regard this as unlawful state aid? If they take that view, there is absolutely no point in taking it. In view of this issue, can he also say whether it would not be better to accelerate the Government's programme for reducing corporation tax generally?

Lord Newby: My Lords, the Government are reducing corporation tax and in a relatively short period it will be down to 22%, which makes the differential between Northern Ireland and the Republic that much less than it was in the past. I can assure the noble Lord that, as long as the Azores principles are followed, this will not constitute a call on state aid.

NHS: Professional Qualifications Directive
	 — 
	Question

Lord Kakkar: To ask Her Majesty's Government what progress they have made in negotiations at European level on the working time and recognition of professional qualifications directives in the light of their impact on the delivery of care in the NHS.

Earl Howe: My Lords, negotiations on both directives are ongoing. The Government remain of the view that both measures should support labour-market flexibility without imposing significant extra costs on member states to ensure that any negative impacts that we have seen are ameliorated and, most importantly, to ensure that patient safety is maintained.

Lord Kakkar: My Lords, I declare an interest as professor of surgery and consultant surgeon at University College London Hospitals. In today's Daily Telegraph the presidents of the Royal College of Surgeons and the Royal College of Physicians make an urgent plea for action on these two elements of legislation to halt a devastating deterioration in clinical training and patient safety. Do Her Majesty's Government collect data on the number of patients harmed as a result of the implementation of these two directives, for instance from coroners' inquests where they have been implicated in patient deaths, and on the financial consequences in terms of the employment of locum doctors in the NHS to ensure that hospitals are 48-hour-week compliant? If these data are not collected will the Minister commit to organising for their collection in the future to better inform this Parliament and to add impetus to the Government's negotiations with their European partners?

Earl Howe: My Lords, it is the responsibility of individual NHS trusts to ensure that service rotas are compliant with the working time directive. In line with the Government's coalition agreement to reduce duplication and resources spent on administration, the department reduced bureaucracy for the service by removing the burden of central monitoring of compliance and we are leaving this role to organisations at local level. The last assessment of the working time directive was undertaken in January 2010 and reported that nearly 99% of doctors' rotas were compliant with the directive but we are in no doubt about the concerns that exist within the medical professions about the inflexibilities within the rules of the directive. As regards the mutual recognition directive, the department does not plan to collect directly any data relating to it. The professional regulators. who are the competent authorities, collect data in respect of the number of people applying for recognition under the directive.

Lord Ryder of Wensum: My Lords, is my noble friend aware of the fact that the clinicians at the Institute of Cancer Research where I am the chairman regard the working time directive as being of no benefit at all to their patients? In view of this fact, can he please tell me now-or if not now, in a letter with a copy placed in your Lordships' Library-the details of the meetings that have taken place between Ministers and senior officials and their opposite numbers in Brussels? The Government have long believed that they are able to revoke or to revise this directive but so far, after two and a half years, I see no progress at all.

Earl Howe: My Lords, it is important to understand that the EU social partner process, which is driving the discussions at the moment and has been extended to 31 December, is autonomous. It operates independently of both the Commission and the Council and the Government have no formal role in any social partner negotiations. Having said that, we have made it clear to the Commission and to partners in Europe that securing long-term sustainable growth has to be the EU's key priority. We will continue to work with our partners to ensure that EU measures support labour-market flexibility and do not impose significant costs on member states or burdens on business. The Government would welcome proposals coming forward that would preserve the right for all workers, including those in the NHS, to choose the hours that they work, including in particular flexibility in the areas of on-call time and compensatory rest as well as the preservation of the individual opt-out.

Lord Turnberg: Does the noble Earl agree that the working time directive as it now operates is detrimental both to patient care and doctor training? Is it not time that we stopped at least the nonsense of counting time in the 48 hours as time when one is on call, even though one may never be called? Will the noble Earl make sure that the case is made to the EU that at least this part of the directive is rescinded?

Earl Howe: The SiMAP and Jaeger judgments are very much the focus of our representations to the EU Commission. The disquiet about those judgements and the inflexibility that they have brought is shared by other member states. It is also important to recognise that none of us wants to go back to the past, with tired doctors working excessive hours. Tired doctors make mistakes; there is substantial evidence to support that. No one wants or deserves to be treated by tired doctors. There is a balance to be struck. The inflexibilities in the directive need to be addressed, but we should not go back to the bad old days when doctors became too tired to do their work.

Baroness Jolly: My Lords, if a clinician fails to understand a patient or to make themselves understood, their clinical competence is undermined. Will the noble Earl tell the House the current situation regarding the required level of English language competence of a doctor or other clinician from an EU state who wishes to practise in England?

Earl Howe: My Lords, we are now talking about the mutual recognition of professional qualifications directive. We have made it clear that we want to stop foreign healthcare professionals working in the NHS unless they have passed robust language and competence tests. As a result, we have explored the idea of strengthening language testing for doctors through the use of responsible officers; and explored also the GMC's ability to take action where concerns arise. The directive review is a key priority for the Government, and the Commission's proposals include greater flexibility on language. It is helpful that the proposal from the Commission makes it clear that controls on language checks are permissible and may be undertaken before a professional is able to practise.

Energy: Self-sufficiency
	 — 
	Question

Lord Ezra: To ask Her Majesty's Government whether the UK could again become self-sufficient in energy.

Baroness Verma: My Lords, I begin by paying tribute to my noble friend for his contributions and consistency in bringing this and similar Questions to our attention. The Government are committed to maximising all UK energy resources, including from the UK continental shelf and from UK-based renewables. However, all plausible scenarios of future energy use up to 2050, such as those set out in the Government's carbon plan, require some fossil fuels. The amounts of oil and gas produced from the UK continental shelf are declining year on year. This means that it is unlikely that the UK could become completely self-sufficient in energy. However, import dependence is not new to the UK. We were heavily dependent on imports until the 1980s. We work closely with international partners such as Norway.

Lord Ezra: My Lords, as the House knows, historically this country was self-sufficient in energy supplies thanks to coal, natural gas and oil from the North Sea. However, as my noble friend mentioned, we had to import no less than one-third of our requirements in 2011. Does my noble friend agree that it will remain a major plank of the Government's energy policy to reverse this trend as soon as possible? Secondly, will she confirm that there will be adequate electricity supplies and generating capacity, in view of the recent report of Ofgem that stated that there might be a reduction in capacity in the next four years?

Baroness Verma: My noble friend is absolutely right that we need to try to maximise the economic recovery of oil and gas from the UK continental shelf, and our most recent licensing round has been the most successful ever. We are committed to working with industry to create a new world-leading, cost-effective UK carbon capture and storage industry, and policies such as the Green Deal and the introduction of smart meters will reduce our energy demand and ensure more efficient use of the fuel that we use. Our ongoing work is to achieve renewable targets which significantly increase the proportion of clean domestic energy in the mix. Ofgem's recent report provides a comprehensive analysis of the security of supply. We are looking at it very carefully and will respond formally by the end of the year.

Lord Teverson: My Lords, does my noble friend agree that, by making the most of the wide variety of renewables that our islands are blessed with, we will move further towards self-sufficiency in energy and will effectively then disconnect ourselves from the threat of ever-accelerating fossil fuel prices?

Baroness Verma: My noble friend raises a very important point. We are trying to make sure that we have greater self-sufficiency through our renewables but this means only that we reduce our reliance on fossil fuels and, although it is helpful to say that that is what we want to do, we are not currently at that stage. However plausible our scenarios of future energy, I think that there will still be a place for some fossil fuels.

Lord Tomlinson: My Lords, does the Minister agree that it is an illusion to pretend that we can ever attain self-sufficiency in energy without showing a rather more robust and urgent approach to the nuclear industry than the present Government are doing?

Baroness Verma: My Lords, I refute the noble Lord's point that we are not taking a robust approach. We are, but we also need to make sure that we are able to decommission safely and dispose of the decommissioning waste that we have.

Lord St John of Bletso: My Lords, can the Minister elaborate on the potential for the commercialisation of shale gas in the United Kingdom?

Baroness Verma: My Lords, we need to make the most of all our domestic energy resources, and exploitation of shale gas reserves is just one way we can do this. We must also ensure that any development is sensitive to community concerns and consistent with our carbon objectives.

Lord Naseby: My Lords, if we are to continue with the aim of trying to achieve self-sufficiency, has not the time come to have another look at the Stern review, not because there is anything wrong with renewables but because the cost platform has so escalated in that area that it is highly questionable that we can now afford the proposals in that review?

Baroness Verma: My Lords, the Government are very mindful of the points that my noble friend raises but, as I said earlier, we are looking at all forms of energy, including renewables. We may well revisit previous reports but the most important thing is that we look at how, in the future, we are going to have a sustainable energy system which ensures that all our homes constantly have light.

Lord Broers: My Lords, in light of the fact that the Minister has admitted that it is inevitable that we use fossil fuels, how are we doing in our sequestration projects, which are designed to demonstrate the financial feasibility of the sequestration of CO2?

Baroness Verma: My Lords, the noble Lord's question is a very technical one, which will require a very technical answer. I think it would be more helpful to the House if I were to write to him with an in-depth response to his very in-depth question.

Baroness Worthington: My Lords, does the Minister agree that renewables are the way to reduce our dependence on foreign imports of fossil fuels, and would she care to comment on the Crown Estate's recent report into our tidal energy capacity, which is estimated to be the best in Europe?

Baroness Verma: My Lords, I welcome the Crown Estate report, which helps to refine our understanding of the wave and tidal energy resource in the UK. We have always known that we have an outstanding marine energy resource around our coastline and that is why the Government are fully committed to the development of wave and tidal energy. We have put in place the world's most comprehensive support of the sector's development, including innovation funding.

Lord Giddens: Will the noble Baroness look carefully at the-

Noble Lords: Order!

Lord Giddens: Do I have to sit down now?

Economy: Deficit Reduction
	 — 
	Question

Lord Barnett: To ask Her Majesty's Government what is their latest estimate of the debt to gross domestic product ratio in 2015 under the current deficit reduction plan.

Lord Sassoon: My Lords, the Office for Budget Responsibility produces the official fiscal forecasts. The OBR's March 2012 forecast shows public sector net debt peaking at 76.3 per cent of gross domestic product in 2014-15 and subsequently falling in 2015-16 consistent with the Government's supplementary target for debt. The OBR will publish updated forecasts alongside the Autumn Statement on 5 December.

Lord Barnett: My Lords, I thank the noble Lord for his Answer. Is he aware that there has been a later report from a more independent source-namely, the IMF-which states that in 2015 the net debt as a percentage of GDP will be about £50 billion more than the Chancellor previously expected? In those circumstances, does he not accept that the OBR is less independent for the very good reason, as was set out in the beginning, that its forecasts are influenced considerably by the general and regular meetings that it has with the Chancellor and Treasury officials? How many have there been in the past 12 months?

Lord Sassoon: No, my Lords, I do not accept for one minute any questioning of the independence of the OBR. It was set up on a statutory basis through a Bill to which the noble Lord, Lord Barnett, contributed. It is set up totally independently under a respected head, Robert Chote, and his team and I refute absolutely any question that it is not independent. All of its meetings with the Chancellor and the dates on which data are transferred over are transparently set out on the Treasury website.

Baroness Kramer: My Lords, does the Minister agree that lack of access to reasonably priced credit by small businesses is holding back both those businesses and general economic growth? Does he further agree that with funding for lending now in place there is no excuse for the banks not to make that credit available, especially as they no longer have to put capital on their books to support those loans?

Lord Sassoon: My Lords, I certainly agree with my noble friend that the question of funding, particularly for SMEs, continues to be of considerable concern to the Government. That is why we have been able to use the strength of the national government balance sheet which derives from our deficit reduction plans to put in place the funding for lending scheme, to which my noble friend referred, and the UK guarantee scheme of up to £50 billion for infrastructure projects so that we can ensure that credit continues to flow.

Lord Peston: My Lords, I take it that the noble Lord's answer implies that the Government intend to pursue continuously their ludicrous economic policy, the effect of which is that the Government engage in cuts, those cuts lower aggregate demand, the tax revenue goes down and some benefits go up so that the budget deficit increases, whereupon they engage in more cuts, and this process goes on until the economy implodes. That is the danger before us. What is required is a change in economic policy that leads to some expansion of the real economy.

Lord Sassoon: My Lords, I do not know whether the noble Lord, Lord Peston, and his noble friend Lord Barnett have been comparing notes, but the noble Lord, Lord Barnett, was quoting the IMF approvingly at me only a minute or two ago. On this point, only a week ago, on 9 October, a senior official of the IMF said that at this stage:
	"The policy mix in the UK, which consists of adjusting fiscal policy, reducing deficits, at the same time supporting the economy with a very accommodative monetary policy is the right way to go".

Lord Myners: My Lords-

Lord Ryder of Wensum: My Lords, can my noble friend please tell the House about the last time that the IMF forecasts for the British economy were accurate?

Lord Sassoon: My Lords, I am not going to give a commentary on the IMF's forecasts, or anybody else's. We should wait until 5 December to see what the Office for Budget Responsibility has to say in its renewed forecasts.

Lord Davies of Oldham: My Lords, are we not experiencing a double-dip recession that is longer than any since the war, and is it not the case that forecasts are belied by the facts? The Government are borrowing £9.3 billion more in the first four months of this year than in the same period last year. How on earth can the Minister pretend that the present policy is working?

Lord Sassoon: My Lords, we have only to wait until 25 October to learn the third-quarter growth number; then we will know the latest state of play in the economy. As to the question about levels of debt, I find it extraordinary that a Front-Bench opposition spokesman should give us a lecture on debt plans. Does the noble Lord, Lord Davies of Oldham, recognise the recent IFS analysis of Labour's plans, which said that under the so-called Darling plan, total accumulated debt would be £201 billion higher than under the present Government's plans? That level of debt would see the AAA rating gone for a very long time and would see almost £4,000 of debt per man, woman and child in this country added to the debt load we inherited. Is that what the noble Lord is advocating?

Trusts (Capital and Income) Bill [HL]

Bill Main Page

Report

Report received.

Financial Services Bill

Financial Services Bill 
	4th Report from the Delegated Powers Committee

Committee (7th Day)

Relevant document: 4th Report from the Delegated Powers Committee.
	Clause 26 agreed.
	Clause 27 : Powers in relation to recognised investment exchanges and clearing houses
	Amendment 176A
	 Moved by Lord Sassoon
	176A: Clause 27, page 115, line 25, after "Act;" insert-
	"(ba) Part 2A makes provision relating to the winding up, administration or insolvency of UK clearing houses;"

Lord Sassoon: My Lords, this is the first of a number of amendments that will extend the powers under the Banking Act to investment firms and central counterparties to enable their orderly resolution. The financial crisis of 2008-09 highlighted many deficiencies in the regulation of the global financial system. Most importantly, we found that the disorderly failure of systemically important banks could have a catastrophic effect on the stability of the UK and on international financial markets.
	To give the Treasury and other authorities the powers necessary to minimise the impact of bank failure on depositors and the system as a whole, the Banking (Special Provisions) Act was introduced in 2008, swiftly followed by the special resolution regime established under the Banking Act 2009. Both Acts enjoyed cross-party support, although of course they benefited from the scrutiny of both Houses. I trust that noble Lords will take a similarly constructive approach to these important amendments.
	Establishing the special resolution regime for deposit-takers was an important step towards ensuring that systemic institutions would not fail in a disorderly manner. However, deposit-takers are only part of the financial system. There are other types of financial institution, such as investment firms and central counterparties, whose disorderly failure could also severely disrupt both financial markets and the normal functioning of the wider economy.
	Reform is also taking place at a European and global level, and the UK is playing a leading role in these discussions. The UK's approach is consistent with those set out by the European Commission, the Committee on Payment and Settlement Systems, and the International Organisation of Security Commissions. However, implementation of these reforms in Europe is some way off. Our financial services industry is of huge importance to the UK economy and we believe that any gaps in such resolution powers should be addressed as soon as possible. The Treasury therefore consulted on a number of proposals over the summer, including draft legislation. My officials met with a wide range of industry stakeholders, from investment firms and central counterparties to mixed holding companies and industry representatives. As a result of that consultation, we are now able to proceed with the legislation set out in this group of amendments.
	The first group of amendments that I am speaking to today covers the new insolvency regime and arrangements that apply to UK clearing houses and recognised investment exchanges. UK clearing houses form part of the financial market infrastructure that underpins the operations of domestic and international markets. They act as the buyer to every seller and the seller to every buyer, in order to protect trading parties from the risk of counterparty default. The role performed by UK clearing houses means that they are particularly exposed to wider market risks, such as the failure of large clearing members.
	Recognised investment exchanges, in their capacity as market operators, can operate regulated markets and multilateral trading facilities. These exchanges provide a number of crucial services for the trading of shares, bonds and other securities. Amendment 183ZZA introduces a new subset of recognised clearing houses-UK clearing houses-into the regulatory framework. The reason for this is that it is not appropriate for the Bank of England to exercise the new powers contained in these amendments in respect of foreign clearing houses that are not established in the UK, nor in respect of clearing houses that do not offer central counterparty services. This amendment provides clarity on these points.
	Amendments 176A and 176C introduce provisions in relation to the Bank of England's role in winding-up, administration or insolvency proceedings relating to a UK clearing house. These amendments will ensure that the Bank of England and the Treasury are put on notice of the application for the winding up of a clearing house and have the opportunity to consider whether to exercise a resolution power in order to minimise the impact of failure on financial stability. Amendment 176C allows the Bank of England to direct insolvency practitioners appointed in connection with the insolvency of a UK clearing house. Such directions will build on current provisions governing company insolvency but will allow the Bank of England to direct the insolvency practitioner to take steps to minimise the impact of the insolvency on financial stability. In doing so, the Bank must be satisfied that it is desirable, having regard to the public interest in the maintenance of financial stability.
	Amendment 176B allows for the Bank to apply to the court for administration of the clearing house and participate in court proceedings. It also requires that the Bank gives its consent before an administrator is appointed to act for a failed UK clearing house. These powers will enable the Bank of England to respond quickly and decisively when a clearing house is in financial difficulty, managing the safe winding up in a manner that minimises any risk to financial stability and the wider economy.
	Finally, Amendments 189BD to 189BL relate to insolvency arrangements for recognised investment exchanges. They expand the scope of Part 24 of FiSMA so that it applies to the insolvency of a recognised investment exchange, as it applies to the insolvency of an authorised person. This means that the regulator will be able to apply to a court for an order placing an investment exchange into an appropriate insolvency procedure. These amendments also ensure that the regulator would be put on notice of an application for an order placing an investment exchange into an insolvency procedure and could participate in these proceedings if it considered it necessary in the public interest. I beg to move.

Lord Tunnicliffe: My Lords, I thank the Minister for his introduction to the total package of measures to which the amendments relate and for his explanation of specific amendments. The way in which the amendments have been grouped means that a substantial part of the detail of the overall package will be debated in two working days. Accordingly, we will look at the detail during that period and respond then. The results of the consultation are being published today. Only when we have carefully looked at those will we make a detailed response. At a general level, we welcome the bringing of these financial institutions into the resolution regime.

Lord Peston: My Lords, will the Minister clarify one or two aspects of what he said? Am I right in thinking that the amendments, in so far as one can follow them at all, are relevant when something has already gone wrong; that is, when the institution in question is in trouble and something has to be done to cope with that?

Lord Sassoon: Yes, the noble Lord is right in that.

Lord Peston: Am I then also right that other aspects of the Bill are really to stop the problem arising in the first place? Would that be a valid interpretation of the whole legislation?

Lord Sassoon: My Lords, at the risk of oversimplifying matters, yes, indeed. We want a judgment-based system of regulation and supervision that makes it less likely that things will go wrong in the first place. That is entirely correct.

Lord Peston: The Minister must be aware by now that there is no way that he can oversimplify when he is dealing with me. Has a study been done of the costs and benefits of the effects of the amendments? In particular, if a crisis appears that is connected with insolvency et cetera, will costs be involved and who will bear them? I cannot find an answer to that anywhere in the amendments. Is it a responsibility of whoever is administering all this? Further, am I right in thinking that clearing houses will not be saved but essentially go out of business?

Lord Sassoon: My Lords, I can confirm that, as with just about everything that this Government and the previous Government have brought forward, an impact assessment of the measures was done as part of the consultation process. The noble Lord took us back to first principles. What we are trying to achieve in the broad sweep of the construct is for the costs to fall on the industry. The shareholders would be likely to be the first to be wiped out if an investment exchange or clearing house went out of business. That is where the costs would fall. At all times, our principal concern is to make sure that taxpayers are not exposed to material costs such as they were, very severely, in the financial crisis of 2007-08. I hope that that helps the noble Lord.

Lord Flight: My Lords, the Minister referred to EU regulations relevant to the territory. I and colleagues returned the week before last from a visit to Brussels to look at the banking union proposals. The long and short of it appeared to be that ECB supervision proposals might just be achieved; and that the arrangements for a common approach to deposit insurance was unlikely to get anywhere in the foreseeable future, and likewise the arrangements for common resolution systems. What is the Government's stance? I think it is understood that, as we are outside the eurozone, we will not be part of these arrangements, but there was insistence that the EBA, as a sort of advisory body on top of the ECB, would have the last word over central banks and national regulators with regard to issues in all these territories.

Lord Sassoon: I am grateful to my noble friend for bringing us a summary of the latest intelligence from Brussels. If he will permit me, I shall restrict my comments-because he raises some big questions-to this particular group of amendments. He may want to raise European questions as we go through other topics. On this particular topic, and regardless of whatever areas of the evolving European structure the UK is part of or not part of as the banking union goes ahead, work is already going on at EU level to introduce a resolution regime for institutions such as the ones we are talking about. They recognise, as we do, that central counterparties are critically important. The question, therefore, becomes one of timing-should we sit back and wait for Europe to do it?
	I hasten to say that there is absolutely no reason to believe that there is any problem with any of the clearing houses or the recognised investment exchanges, but I would not wish to come here as a Minister in, say, six or nine months' time and say, "Well, we had identified and Europe had identified this issue; we had a vehicle for legislation but we did not actually take the opportunity". I recognise the point made by the noble Lord, Lord Tunnicliffe, that we are putting a lot more things in here, but we have a one-off opportunity. It is an important point, and Europe has identified it, but goodness only knows when Europe will get round to implementing it. We believe that we have a solution-it has been consulted on-and if in due course it is not compliant with the way that the EU subsequently does it, we will obviously have to amend things. There is no suggestion, however, that that will be the case because we have been consulting the UK authorities as we go through the design of this.

Baroness Kramer: My Lords, I have not been sure whether to speak to this group of amendments or the following group, or how to organise comments on the clearing houses. I therefore apologise, but given the conversation that has just taken place, I would like to raise a couple of issues. As this process is going forward in terms of supervision, has attention also been paid to Dodd-Frank? Obviously some of the extraterritorial powers that are being sought by the United States on these issues have a very significant impact on the matters that he is dealing with in this and the next group of amendments.
	The Minister also said that Europe was being very slow to come to conclusions on how to apply resolution for the clearing houses, but he did not mention that they are also very slow-and appear to have done nothing-to recognise or mitigate the procyclicality impact of the changes he is describing in this move towards centralised clearing houses. We all recognise that the changes stamped down on counterparty risk, but they amplify market risk. Procyclicality is a significant part of that. I think that we have to understand that context if we are to understand the particular measures.
	The noble Lord, Lord Flight, raised the issue of co-ordination with other supervisors, but none of these measures seems to address in any way the issue of access to euros for the CCPs, should they require it in another crisis such as the one we saw in 2008. Where are we in the process of negotiating a mechanism that ensures that offshore euro CCPs, such as those in the UK, will be able to access euro liquidity should they need it?
	One last issue-and I will try to hold things for the next round of amendments-is that I am unclear as to how these resolutions tie in with banking resolutions or living wills for banks, because the two obviously tie together. If CCPs are placing large amounts of cash and non-cash collateral in banks in the UK as a result of their margin positions, what happens if the bank holding such collateral fails? Is the CCP just one more unsecured creditor? It would be helpful to have some sense of on what side of the ring-fence such accounts would fall for us to understand whether there is significant risk or a relatively minor one. As I said, I shall hold all comments on the actual resolution mechanism to the next round of amendments.

Lord Sassoon: My Lords, my noble friend asks a lot of important questions but there is a danger of overinterpreting what the clauses achieve. They are to cover circumstances that we do not envisage-although we did not envisage any of the circumstances that occurred in 2007-08, but there is no reason to believe that there is a problem here. As my noble friend says, the clearing houses already have a critical role in the financial architecture; that role is getting even more important as more trading is done on exchange and securities are cleared through the clearing houses.
	We are trying here to put in place some mechanisms by which the authorities can step in where voluntary arrangements or insolvency are live. I do not believe that in drawing up the proposals or in consultation on them any difficulty has been identified in relation to the Dodd-Frank rules. Of course the question of procyclicality must be dealt with, but the provisions enabling the authorities to intervene in winding-up, administration or insolvency, recognise the importance of clearing houses as they are now. As clearing houses are asked to do more, of course other provisions may be needed, but the provisions are not intended to anticipate some future development of the clearing houses' role, merely to reflect the situation that we are in already and their structural importance.

Baroness Kramer: Is the Minister saying that the provisions are completely apart from EMIR and the ESMA rules derived from EMIR and that we will have another round, as it were, at some point encompassing those rules?

Lord Sassoon: Yes, I am essentially saying that. This is about clearing houses and recognised investment exchanges that get into trouble, whatever the cause of the trouble. EMIR and related issues raise a whole separate series of questions-including, for example, the question of access to euro liquidity, on which, as I am sure my noble friend knows, we last year started an action against the European Central Bank which, we believe, is attempting to draw lines across the single market in financial services depending on whether a country is in or out of the eurozone around where clearing houses can operate in the euro.
	We as a Government firmly believe that the single market requirements are such that a clearing house can operate in the euro wherever it is located in the European Union and that access to euro liquidity and everything else should flow from that. As to the relationship with the banks, that is not directly relevant to these clauses. An exception to this is where a bank has an important relationship with a clearing house. These new powers mean that the authorities can step in if there are questions of financial stability. We have additional tools in the authority's kit-bag to deal with a situation which might include the knock-on effect on the banks of their relationship with the clearing houses or vice versa. So it does increase the toolkit.

Lord Barnett: My Lords, this group of amendments seems, at least to me, to emphasise ever more the huge powers that are being given to the Bank of England under this Bill. I am grateful to the Minister for all his clarifications so far, and I take it from what has been said about the European situation that this is not one of those areas where the Government are looking to transfer power away from Brussels. However, my main question is this: given the huge powers that are being given to the Bank of England under the Bill-this might explain why there are so few applicants for the post of governor; it is such a complex job that no one wants it, even with a salary of £300,000 a year and going up all the time-will the Government give new thinking to the whole idea of the extra powers that are being given?

Lord Sassoon: First, my Lords, there is no question in this of anything being transferred to or from the EU. This is just a regime around the winding-up administration for the insolvency of UK clearing houses, so I assure the noble Lord that that issue does not arise. It was his Government-the previous Labour Government-who identified this general area as one that needed to be dealt with, particularly in the context of deposit takers, where the need was identified to put additional provisions in place for resolution regimes. We built on the work initiated by the previous Government and have identified other systemically important parts of the system.
	We are talking about clearing houses and recognised investment exchanges this afternoon, and we will go on in a future session to talk about investment banks. We are merely saying that we have identified other areas where the authorities need to have powers similar to the ones that came out of the legislation initiated by the previous Government, and are putting that in place.
	As to the cumulative amount of responsibility that we are giving to the Bank of England, we have already in the course of the very useful scrutiny of this Bill made some important changes, including putting the oversight committee in place to respond to the sort of challenge that the ever-nimble-on-his-feet noble Lord, Lord Barnett, raises. I therefore think that we have covered that issue up front in this Bill and that the Government have made some big concessions.

Lord Peston: My Lords, I will not pursue the question of more powers to the Bank of England. After its performance over the last few years, it is the last thing I would do, and I do not think this is the occasion to debate that yet again. However, I am puzzled by two things. I thought that in his reply to the noble Lord, Lord Flight, he said we should not be discussing the European angle and that that would come at some other stage. Is that right? I do not think I misheard him.

Lord Sassoon: No, I said in my reply to my noble friend this afternoon that I would concentrate purely on the European angle of these amendments, which I dealt with. I was not going to be drawn into discussing a whole range of other European matters which my noble friend's remarks address. It is as simple as that.

Lord Peston: I take it that we are not discussing-because if we were, I would make a speech-the fact that we believe strongly in a single market for financial services but that many of the European countries go to enormous lengths to prevent our highly efficient financial services firms getting into their markets. I would not mind having a debate on that some time during proceedings on this Bill. However, I gather that in the Minister's view this is not the moment.

Baroness Cohen of Pimlico: Might I ask the Minister for a little guidance? If we are discussing all these amendments together, I have a set of problems that I would like to discuss on Amendment 176D. Is this the moment or are we going to do all the amendments separately?

Lord Sassoon: If the noble Baroness will allow me, we will come to Amendment 176D-I would say in a moment, but it might be a prolonged moment.
	Amendment 176A agreed.
	Clause 27, as amended, agreed.
	Schedule 7 : Application of provisions of FSMA 2000 to Bank of England etc
	Amendments 176B and 176C
	 Moved by Lord Sassoon
	176B: Schedule 7, page 217, line 42, at end insert-
	"Insolvency
	23A (1) The following provisions of Part 24 of this Act are to apply in relation to the Bank-
	(a) section 356 (powers to participate in proceedings: company voluntary arrangements);
	(b) section 358 (powers to participate in proceedings: trust deeds for creditors in Scotland);
	(c) section 359 (administration order);
	(d) section 362 (powers to participate in administration proceedings);
	(e) section 362A (consent to appointment of administrator);
	(f) section 363 (powers to participate in proceedings: receivership);
	(g) section 365 (powers to participate in proceedings: voluntary winding-up);
	(h) section 367 (winding-up petitions);
	(i) section 371 (powers to participate in proceedings: winding-up).
	(2) Those provisions are to apply as if any reference to an authorised person or recognised UK investment exchange were a reference to a recognised clearing house.
	23B In the case of any regulated activity which is carried on for the purposes of, or in connection with, the provision of clearing services, the reference to the FCA in section 375(1) is to be read as including a reference to the Bank."
	176C: Schedule 7, page 219, line 41, at end insert-
	"PART 2AWinding up, administration or insolvency of UK clearing housesNotice to Bank of England of preliminary steps
	31A (1) An application for an administration order in respect of a UK clearing house may not be determined unless the conditions below are satisfied.
	(2) A petition for a winding up order in respect of a UK clearing house may not be determined unless the conditions below are satisfied.
	(3) A resolution for voluntary winding up of a UK clearing house may not be made unless the conditions below are satisfied.
	(4) An administrator of a UK clearing house may not be appointed unless the conditions below are satisfied.
	(5) Condition 1 is that the Bank of England has been notified-
	(a) by the applicant for an administration order, that the application has been made,
	(b) by the petitioner for a winding up order, that the petition has been presented,
	(c) by the UK clearing house, that a resolution for voluntary winding up may be made, or
	(d) by the person proposing to appoint an administrator, of the proposed appointment.
	(6) Condition 2 is that a copy of the notice complying with Condition 1 has been filed (in Scotland, lodged) with the court (and made available for public inspection by the court).
	(7) Condition 3 is that-
	(a) the period of 2 weeks, beginning with the day on which the notice is received, has ended, or
	(b) the Bank of England has informed the person who gave the notice that-
	(i) it has no objection to the order, resolution or appointment being made, and
	(ii) it does not intend to exercise a stabilisation power under Part 1 of the Banking Act 2009.
	(8) Arranging for the giving of notice in order to satisfy Condition 1 can be a step with a view to minimising the potential loss to a UK clearing house's creditors for the purpose of section 214 of the Insolvency Act 1986 (wrongful trading).
	(9) In this paragraph "the court" means-
	(a) in England and Wales, the High Court,
	(b) in Scotland, the Court of Session, and
	(c) in Northern Ireland, the High Court.
	Power to give directions to insolvency practitioner
	31B (1) This paragraph applies where a person has been appointed to act as an insolvency practitioner (within the meaning of section 388 of the Insolvency Act 1986 or article 3 of the Insolvency (Northern Ireland) Order 1989) in relation to company which is, or has been, a UK clearing house.
	(2) The Bank of England may give directions to the person if satisfied that it is desirable to give the directions, having regard to the public interest in-
	(a) protecting and enhancing the stability of the UK financial system,
	(b) protecting and enhancing public confidence in the stability of the UK financial system, and
	(c) maintaining the continuity of central counterparty clearing services.
	(3) Before giving directions the Bank of England must consult-
	(a) the Treasury,
	(b) (if the clearing house is a PRA-authorised person) the PRA, and
	(c) the FCA.
	(4) Directions are enforceable, on an application by the Bank of England, by an injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.
	(5) A person is not liable for damages in respect of action or inaction in accordance with directions.
	(6) The immunity does not extend to action or inaction-
	(a) in bad faith, or
	(b) in contravention of section 6(1) of the Human Rights Act 1998.
	(7) In this paragraph "central counterparty clearing services" has the same meaning as in section 155 of the Companies Act 1989 (see subsection (3A) of that section)."
	Amendments 176B and 176C agreed.
	Schedule 7, as amended, agreed.
	Clause 28 agreed.
	Amendment 176D
	 Moved by Lord Sassoon
	176D: After Clause 28, insert the following new Clause-
	"Additional power to direct UK clearing houses
	After section 296 of FSMA 2000 insert-
	"296A Additional power to direct UK clearing houses
	(1) The Bank of England may direct a UK clearing house to take, or refrain from taking, specified action if the Bank is satisfied that it is desirable to give the direction, having regard to the public interest in-
	(a) protecting and enhancing the stability of the UK financial system,
	(b) maintaining public confidence in the stability of the UK financial system,
	(c) maintaining the continuity of the central counterparty clearing services provided by the clearing house, and
	(d) maintaining and enhancing the financial resilience of the clearing house.
	(2) The direction may, in particular-
	(a) specify the time for compliance with the direction,
	(b) require the rules of the clearing house to be amended, and
	(c) override such rules (whether generally or in their application to a particular case).
	(3) The direction is enforceable, on the application of the Bank, by an injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.
	(4) The Bank may revoke a direction given under this section.
	(5) In this section "central counterparty clearing services" has the same meaning as in section 155 of the Companies Act 1989 (see subsection (3A) of that section)."

Lord Peston: My Lords, before the Minister moves this amendment, can I ask him one other thing that intrigues me? On the bit of paper that we get every day when we meet on this, it says:
	"Target for the day: to complete the group beginning amendment 190ZZA".
	Are we to take that seriously? At the rate we are going, we will be going for a very early supper.

Lord Sassoon: My Lords, as ever, these things are discussed and agreed through the usual channels. I certainly take my side of the usual channels extremely seriously. The noble Lord can discuss it with his side, but I believe that is where we are headed. I thought we might have got through the previous group of amendments rather more quickly, so I do not know what time we will finish, but in only a moment I have been able to move on to Amendment 176D.
	Amendments 176D and 182ZA build on the existing powers of direction that the Financial Services Authority has under the Financial Services and Markets Act 2000, or FiSMA. This group of amendments gives the Bank of England additional powers to direct UK clearing houses to address risks to their solvency, or indeed any other matter. Specifically, the direction could require a clearing house to make changes to its rules or introduce emergency rules, or require rules to be activated. The existing powers of direction provided for in FiSMA can be used only to direct a clearing house to ensure that it complies with the recognition requirements or its obligations under FiSMA. Here, in answer to a point that the noble Lord, Lord Peston, raised, we are talking about powers that go with the previous group of amendments, which were all to do with clearing up a mess when we got there. We are now talking about additional powers to make sure, specifically, that we minimise the chances of getting into trouble.
	Providing the Bank with additional powers of direction over UK clearing houses is essential to allow the Bank to manage the considerable risks that may be posed by actions of a clearing house that is nevertheless not in breach of its recognition requirements or obligations under FiSMA. Put simply, the powers will enable the Bank to intervene as required to help to ensure that clearing houses act in a way that is consistent with the maintenance of financial stability and wider market confidence. For example, these provisions allow the Bank to issue a direction requiring a UK clearing house to refuse to accept certain investments as collateral, or to require all collateral in relation to specified types of financial transaction to be provided in cash. They also allow the Bank to require a UK clearing house to alter the rules concerning its operation in order to ensure that certain matters do not constitute events on which specified rights become available-for example, early termination rights-or to require a UK clearing house to take action or to refrain from taking action under its default rules.
	Although these powers are wide-ranging, building in essential flexibility to manage new and unusual risks, they may be exercised only where the Bank is satisfied that it is desirable to do so, having regard to various clearly defined public interest tests. With one exception, the Bank of England cannot use this power to require shareholders, members or clients to recapitalise or otherwise fund a failing recognised clearing house. The power of direction relates only to the recognised clearing house itself. The exception is where the UK clearing house already has recapitalisation arrangements and agreements in place with its shareholders. In this instance, the Bank of England could use this power to direct the UK clearing house to enforce those arrangements, provided that the necessary conditions and safeguards are met. This is to ensure that the clearing house acts in a way that is consistent with the maintenance of financial stability and wider market confidence. I beg to move.

Baroness Kramer: My Lords, I hope that these amendments will be consistent with EMIR and ESMA rules. It is not as though those are not available to the Treasury, and the last thing the industry needs is continual revision. Can the Minister clarify whether the amendments give the Bank of England a fairly free hand in resolution procedures? As he said earlier, the steps to resolution are, first, to use the collateral margin; and, secondly, to go into, presumably, the clearing house default fund and exhaust that. I am not clear what the next step and fallback is at the end of that process.
	To what extent is there the capacity to go back to members or, as implied by EMIR, for the Bank of England to direct or permit clearing houses in effect to tear up their trades where a financial stability issue has been raised? If those are the kinds of powers that are being transferred to the Bank of England as a consequence of this, when will we get some clarity on exactly what the rules are-by whom, how and when those steps might be applied? Will they be comprehensive when we see them, as well as clear? Will they be credible, in the sense that they are the kind of rules that could be implemented in a crisis? There is a lot of concern about all that, because EMIR creates a possibility but has not created the rules. Can the Minister tell us when we will get those rules and be able to look at all this again? I understand that EMIR is to be implemented by the middle of next year. That does not give us much time if we are going to use this legislation, so I remain very confused.

Baroness Cohen of Pimlico: I draw attention to some difficulties raised by Amendment 176D. In doing so, I need to declare my interest as a non-executive director of the London Stock Exchange, and in that respect as the owner of a clearing house in Italy, and, I hope, subject to all the regulatory requirements, the owner of a majority share in the London Clearing House, and therefore very directly concerned.
	These new powers extend the existing powers of direction over clearing houses that the Bank will already have under Section 296 of FiSMA. The amendments are being brought forward following many consultations with the Treasury this summer. I have two problems with the new clauses; I am not certain that the Minister has not just solved the first one, but I will say all this in order to make quite sure that we have got the answer right.
	Will the Minister please confirm that the new powers under Amendment 176D cannot and will not be used to direct owners and members of a clearing house to recapitalise or re-fund the default arrangements? I hope that I am pushing at an open door here. I think the Minister said that the direction would not compel unless the default or refunding arrangements were already agreed and an already agreed arrangement were simply being activated. If so, that is splendid, and I would be grateful if he could kindly confirm it again. It is obviously important for owners and members of a clearing house to understand their maximum possible liabilities and to finance accordingly.
	Secondly, will the Minister explain why the Bank has been given two different sets of new powers over clearing houses, each subject to slightly but critically different trigger conditions? Next week we are likely to debate Amendment 193G, which extends the resolution regime specified in the Banking Act 2009 to cover clearing houses as well. The proposed powers under the Act are subject to stiff trigger conditions, principal among which is that the clearing house is likely to fail to meet its threshold conditions under the meaning of FiSMA-namely, that the clearing house may be about breach its licence, including being in danger of running out of money. Even in those circumstances, though, the Bank is required to consult the Treasury before it can exercise any powers. There is no limiting indication of this sort so far in Amendment 176D-the Bank can apparently just do it all by itself, which would make anyone a little anxious.
	My request to the Minister is that any proposal for granting the powers should be subject to the same conditions and the same external approach as under the revised Banking Act regime. I suggest that this could include the requirement that provisions should be proportionate to the risks to market stability and be exercised only with the approval of the PRA, the FCA and HM Treasury. The reason for this is to ensure the famous level playing field for clearing houses. If additional powers and direction are the given to the Bank, under both the Financial Services and Markets Act and the Banking Act, it would seem to make sense to make them subject to the same conditions and to offer consistency across the legislation.

Lord Hodgson of Astley Abbotts: Before the Minister replies, I add my request to him to explain the issue of the level playing field. We have a very complicated piece of legislation here. In Amendment 176D we are looking at an additional power to direct UK clearing houses, and in Amendment 193G there is an application to UK clearing houses. I would like the Minister's reassurance that this is not going to lead to differential treatment, because it will be extremely confusing if that is the case, and that the basic conditions, as the noble Baroness said, are going to be the same and that we are not going to find ourselves at sixes and sevens because it depends on which part of the Banking Act or FiSMA is applicable in a particular case. I realise that this is a technical point, but it is important that we try to get as much clarity and as much of a level playing field as possible.

Lord Barnett: My Lords, I would like some clarification. New Clause 296A in Amendment 176D says that the Bank of England "may" direct, not "must", even though it has regard to the public interest, while new Clause 296A(2) says that the direction "may" specify various things. The direction is then enforceable only on the application by the Bank by an injunction or by other complicated means. Why should it not be "must" if it is in the national public interest? I do not understand why the word "may" is there rather than "must".

Lord Sassoon: My Lords, I shall try to deal with a number of those points. First, on the general question of "may" and "must", I have quite a lot of sympathy with the noble Lord, Lord Barnett. I thought that we were going to have a more extensive discussion about "may"s and "must"s in our previous session, but unfortunately and regrettably the noble Lord was not able to be here, so we did not spend as much time discussing it as we could have done. There were some instances last week where I thought that on a first reading he and the noble Lord, Lord Peston, had spotted some rather good examples where those terms should be reversed, although they had spotted one or two others where I did not agree with them. However, it provoked quite a long discussion with the Treasury lawyers and drafting experts. As a general matter, I have asked them to reassure me on all the "may"s and "must"s in the Bill, as I am a bit confused sometimes. However, a general defence of this is that, even though some of us as laymen may think that a "may" should be a "must", it gives rise to all sorts of difficult potential legal challenges. As noble Lords will know, this is a common feature of a lot of legislation that we discuss. I have asked the draftsmen to reassure me that there are no instances where we could change the language in the Bill. I am grateful to the noble Lord, Lord Barnett, for that.
	In answer to my noble friend Lady Kramer, as the Committee will know, EMIR will, in the main, force mandatory clearing of OTC derivatives. That will increase the role of, and risk concentrated in, clearing houses and is part of the driver behind introducing these new powers now. I reassure my noble friend that these provisions are entirely consistent with and complementary to EMIR. The intention is that the EMIR regime will be agreed in full by 1 January 2013, with 12 months thereafter to comply. I believe that that gives enough time to explain to all concerned how these various powers are going to be operated. However, I will take back my noble friend's specific concern that all relevant guidance, particularly in the area that we are discussing this afternoon, goes out in good time. I will discuss that with the authorities.
	On the specific questions that arise from the London Stock Exchange, I confirm to the noble Baroness, Lady Cohen of Pimlico, that I answered the question on the first point directly. On the second point, we need to recognise that there are two rather different sets of trigger conditions. The power of direction is designed to avert situations where resolution is necessary. The special resolution regime itself is to be implemented where there is no realistic prospect of the clearing house continuing to function. While I am happy to debate and take away the noble Baroness's point-I will read carefully what she said on the record-I believe that there is a fundamental mis-read-across between the appropriate trigger conditions for a power of direction as opposed to a special resolution regime. Of course, if there is anything more I can add on that, I will write to all those on the copy list.

Baroness Kramer: For clarification, I had understood the statement of the noble Baroness, Lady Cohen, to be that she was reassured because, under these rules, there was no expectation that the members of a clearing house could be required to top up a default fund unless there were some pre-agreed arrangement or mechanism in place; they would presumably be able to scope out their liabilities. What are the consequences of that for those who are trading and clearing through for the counterparties on the various transactions where the clearing house then has no resource to margin or to a default fund because it is exhausted and whose trades remain open with the clearing platform as the counterparty that should have fulfilled that side of the trade? What are the implications for people who initiate the various derivatives contracts? As my noble friend knows, these contracts often can be open for quite a few years. Are they at risk or is there some other mechanism that provides them with protection, or will they have to very carefully evaluate what they consider to be the financial safety of the clearing houses? If that is the case, will we have credit-rated clearing houses? What mechanism will be used to have some sort of assurance that this is an appropriate platform for them to use to clear trades?

Lord Sassoon: My Lords, these are professional markets. We are putting in place additional protections and provisions, which does not mean that you could not put in place in a theoretical world all sorts of other protections. We are going further than the current situation. Currently, all sorts of rules and oversights are in place. We are going further but we do not believe it is appropriate-that is the point on which I was able to reassure the noble Baroness-that the Bank of England should be in a position to order shareholders of these businesses any more than it can order shareholders of banks that fail to put more money in, save only in the prescribed circumstances where there is a pre-existing agreement and where the clearing house itself can trigger it.
	I am sure we can all think of all sorts of provisions that we could put in place to make the world a lot safer, but rather sterile, place. We are going further than the current protections. Of course, theoretically, various things could be put in place but we do not intend to do that.

Lord Peston: My Lords, I hate to abandon a "may" and "must" debate, because it is my favourite activity. However, in this case, since we are discussing additional powers, I hate to say it but I think that "may" is simply the word that corresponds grammatically to giving the additional powers. Given the circumstances in which the amendment lists when those powers can be used, it is perfectly obvious that "must" is then implicit. Why else would these criteria be taken into account? I do not want the Minister to stop annoying the parliamentary draftsmen but perhaps for once they have got it right.

Lord Sassoon: I am very grateful to the noble Lord, as I am sure the officials will be.
	Amendment 176D agreed.
	Clause 29 agreed.
	Clause 30 : Power to take disciplinary measures against recognised bodies
	Amendments 177 to 181 not moved.
	Clause 30 agreed.
	Clauses 31 and 32 agreed.
	Schedule 8 : Sections 26 to 31: minor and consequential amendments
	Amendments 182 to 183ZZA
	 Moved by Lord Sassoon
	182: Schedule 8, page 223, line 25, leave out "subsection (5)" and "subsections (5) and (6)"
	182ZA: Schedule 8, page 223, line 26, after "procedure)" insert-
	"(a) in subsections (1), (6) and (7), after "section 296" insert "or 296A", and
	(b) "
	182A: Schedule 8, page 223, line 40, leave out from "provision)" to "substitute" in line 41 and insert "for "Authority" (in each place)"
	183: Schedule 8, page 225, line 12, leave out "and (12) (in both places)" and insert "(12) (in both places) and (13) (in the first place),"
	183ZZA: Schedule 8, page 225, line 15, leave out "In section 313 (interpretation)" and insert-
	"(1) Section 313 (interpretation) is amended as follows.
	(2) In subsection (1), at the end insert-
	"UK clearing house" means a clearing house-
	(a) which has its head office or its registered office (or both) in the United Kingdom,
	(b) which provides central counterparty clearing services, and
	(c) in relation to which a recognition order is in force."
	(3) "
	Amendments 182 to 183ZZA agreed.
	Schedule 8, as amended, agreed.
	Clauses 33 and 34 agreed.
	Schedule 9 : Discipline and enforcement
	Amendments 183ZA to 183ZD
	 Moved by Lord Sassoon
	183ZA: Schedule 9, page 227, line 43, leave out ""UCITS directive"" and insert ""auctioning regulation""
	183ZB: Schedule 9, page 229, line 14, leave out ""UCITS directive"" and insert ""auctioning regulation""
	183ZC: Schedule 9, page 230, line 12, leave out ""UCITS directive"" and insert ""auctioning regulation""
	183ZD: Schedule 9, page 231, line 16, leave out ""UCITS directive"" and insert ""auctioning regulation""
	Amendments 183ZA to 183ZD agreed.
	Amendment 183A
	 Moved by Lord Flight
	183A: Schedule 9, page 232, line 23, leave out paragraph (b)

Lord Flight: My Lords, Amendments 183A and 187A seek to restore the existing 28-day period for representations for principal parties and third parties. I hope that the Government will not have a problem with accepting that as a small step towards ensuring that justice is done. Amendments 185A and 186 are rather more fundamental as they seek to limit the very wide powers that the Bill presently gives with regard to the publication of warning notices.
	I am not sure why it has not been included in this group of amendments but subsequently we shall come to Amendment 187AA in the name of the noble Baroness, Lady Hayter, which potentially has the whole solution to the issue that I raise by providing for an independent judicial body and process for each regulator. At present, the amendment in the Bill to Section 391 will enable the PRA and FCA to publish details of their allegations immediately they are issued to individuals or firms, which seems to me to be unfair for two fundamental reasons. First, the allegations could be mistaken in fact and, if not mistaken, they could be one-sided. I think it is unfair for a regulator to publish such allegations when the individual or firm has no equally authoritative platform from which to respond. Secondly, there is the position of a senior manager; a business could become completely untenable where such a notice is issued.
	Under FiSMA at present, the FSA is not able to publish its allegations against a firm or individual until they have had an opportunity to challenge them by meeting the FSA's enforcement division. Effectively, that means appearing before the Regulatory Decisions Committee, which acts as a relatively independent judicial body. It seems wrong in principle for an individual or organisation to be publicly labelled guilty before there has been some form of independent judicial process to assess the matter. Stakeholders can also be unfairly affected. I cite the fall of 25% in Standard Chartered's share price when something similar happened in the USA and the New York regulator gave advance notice of publicly alleged wrongdoings by Standard Chartered. It is not just the individuals or organisations that are affected but the pension funds and others who are shareholders.
	The Treasury's justification that:
	"The new warning notices power is a good idea because it will increase transparency. This will mean that consumers will know at an earlier stage where things are going wrong with a firm or individual and the FCA is taking action",
	seems to me to ignore or to override the principles of natural justice and the wider interests of other stakeholders. It was particularly ironic that both the Chancellor of the Exchequer and the Governor of the Bank of England should have complained about the Standard Chartered case when the FSB contains very similar provisions which will enable the same sort of thing to happen in the UK. I grant that the positions are not absolutely analogous but they are pretty similar.
	The protections in the Bill are also unlikely to be effective. While the regulator is obliged to consult with the person or organisation to whom a warning notice is given and not to publish such notices if they are deemed to be unfair or prejudicial to the interests of consumers or detrimental to the stability of the UK's financial system, the Bill is not clear as to what are the requirements to consult and it is implicit that in the event of disagreement between the regulator and the recipient as to publication, the regulator will have the power to go ahead and publish. It would be analogous to introduce a power to publicise the stage in the process which otherwise remains private until after the regulatory decisions committee has decided whether or not to issue a decision notice. Also, unlike the USA regulators in the UK have statutory immunity and cannot be sued if they have wrongly caused a damaging impact on a business as a result of their actions.
	The position of the regulatory decisions committee is crucial. It is not a creature of statute but rather the system which the FSA has evolved and adopted. There is no obligation under the Bill for the FSA or PRA to adopt the regulatory decisions committee model. The Government's proposed amendment erodes the independence of the decision-making body. While the actual decision to publish must be taken by at least one person not directly involved in establishing the evidence on which a decision is based, other decision-makers can participate who have been directly involved in the underlying investigation. I fear that is not very far from the investigators taking the decision where the Government's proposed amendments to the existing law appear to allow the existing safeguards to be substantially bypassed. This in turn throws up the risk that a decision made by a body which includes individuals who have been involved in gathering the evidence on which it is based could be challenged by an affected party as being contrary to the principles of natural justice that no man may be a judge in his own case. Parallels have also been made with bringing charges in criminal proceedings which are public, but the code for crown prosecutors imposes a far higher standard of proof that there is sufficient evidence to provide a realistic prospect of conviction than the much lower standard of proof for a regulator issuing a warning notice.
	It seems that in focusing on the value of transparency, the Treasury has ignored the equally important issues both of natural justice and of third-party stakeholder interests in business. I hope the Standard Chartered case will serve to highlight the dangers of this approach and to change the Treasury's mind here.

Lord Deben: My Lords, I declare an interest as a board member of a company which might be affected by this and also as chairman of the Association of Independent Financial Advisers. It means I know a bit about what is happening here and it concerns me very considerably. The proposal is that the public will know more but I do not think that they will. It has been shown that the public will assume that if no reference has been made, then everything must be all right. Recent examples have shown that the regulator has failed to know what is going on inside organisations. If a regulator says that there may be something wrong, the public will know that there may be, but the public will assume that if the regulator does not say that, everything is all right. So I am not at all sure that there is an extension of transparency.
	There is a big problem for the Government. This Bill was introduced at the same time as the Civil Aviation Bill. I listened carefully to everything that the Minister said on the Civil Aviation Bill. Very simply, he said that they were introducing all kinds of ways in which people who were affected by the regulators would be able to appeal. They would be able to make sure that they were heard, and certainly they would not be criticised before evidence had been laid. All the arguments that my noble friend made were stated in defence of the changes in the Civil Aviation Bill-yet at precisely the same time we produce this Bill, which removes all the things that we put into the Civil Aviation Bill. The Government cannot have it both ways. Either it is right for the Civil Aviation Bill and for this Bill, or it is not right for either. This is why the House of Commons has asked us to be so careful about this. It is very concerned.
	There is also a question of parallels in criminal proceedings. This is a very odd argument. The reason that the police announce publicly that they are proceeding to prosecution or considering prosecution is to protect the person who is being prosecuted, so that they do not suddenly disappear. It is done as a protection of the individual against whom an allegation is made. In many other systems it has been shown that if you do not do that, people get themselves into circumstances that no one else knows about. The police in this country have to be transparent not for the general public but for the individual concerned. The situation is wholly different for financial institutions with which we are dealing. If it is said in advance that the regulator is considering action, in the world in which we live people will make immediate assumptions; the pinks will be out immediately with all the comments that one would expect. Is this fair? I think not.
	Certainly there are too many examples of regulators getting it wrong-as well as too many examples the other way round when they did not intervene and got it wrong. It is much better to have a system in which the regulator goes as far as he can to establish the truth before he makes public an allegation, particularly in a country where the regulator is protected by law. If we were in a country where the regulator could be sued, that would be different-but we are not. We have a system-I agree with it-in which the regulator is able to make such allegations without any fear. I do not think that that is acceptable. It is not acceptable in terms of natural law. Therefore, it is crucial that this House defends and protects people.
	This argument comes from someone who has been more critical than most of the financial services industry, and who has been critical of regulators for not intervening rather than for intervening. Therefore I am on the right side, in terms of the Government, but one should not win these battles by shortcuts-and this is a shortcut. It does not achieve anything because if it is right that an investigation should take place and that somebody should be put on notice that they are to be investigated, that is done just as well in private hands as in public-and if the charge is true it will become public. If it turns out to be something that it is necessary for the world to know, it will be known. The idea that it should be known before one knows whether it is necessary or not is not an acceptable position.
	Although I have declared an interest in this, my real interest is that I have fought in this House-as I did in the other House-for the rule of law. Part of the rule of law is that nobody shall be judged guilty until they are proved guilty. The problem with this change is that it is unparalleled and not applied in any other industry, and it ends up with people being assumed to be guilty until they can prove their innocence. The length of time that the regulator takes to work means that many people will never be able to prove their innocence because they will already have gone bust. We have not recognised how serious this measure would be for companies. It is not a fair way of proceeding and it is not justified. Frankly, the regulator has not given a single example of when having this power would have improved regulation. I asked but no answer came-all I got was a statement that it will be useful. That is not a satisfactory answer for the removal of a human right.
	I very much hope that the Minister will understand there is very considerable unhappiness about this; it is unnecessary and it is to act here in a way that I have not seen in any-any-legislation brought before this House since this Government took office. I would therefore like to know why what is sauce for the goose is not sauce for this particular gander. Could we please have an absolute example-even one-of a case in recent years in which this power would have helped the cause of justice? If we cannot, it seems to me likely that the cause of justice will not be helped at all.

Lord Hodgson of Astley Abbotts: My Lords, I rise to support the amendments of my noble friend. In Committee, I said I believe that the regulatory philosophy, culture and approach has shifted and that far from it being an attempt by both sides to achieve the best and right way forward it has become an entirely aggressive, uncontrolled approach by the regulator without any thought to the consequences of how his actions will impact on the firm in question or the City as a whole.
	I have also spoken about the increasing use of Section 166; the way that the significant influence function committee has used its powers to damage people's careers and leave them absolutely no redress at all. They are left in limbo. My noble friend says that people can go for judicial review, but if he believes an individual is going to take on a regulator in this way, he cannot be doing anything other than reading the Treasury briefing note. I cannot believe, with his experience of the City, that he really believes an individual is going to be able to take on an organisation like the FCA, or the FSA as it now is, with its limitless resources, limitless amount of time and limitless access to legal expertise. I believe my noble friend raises a very serious point.
	I understand the argument about transparency and it is an attractive one but the fact of the matter is we may be having transparency about inaccurate or wrong information. That cannot be sensible. We owe it to all sides for transparency to be about things that are correct in every sense. When a regulator, with all its authority, is able to put out its view it means that the person about whom the allegations are made never has a chance to obtain proper redress. In the eyes of the public there is no smoke without fire, people will say there must be something or the regulator would not have put the information out there. Even if it is proven in the end to be absolutely wrong, and even if it has not gone bust in the meantime, the firm will be immensely damaged. People will say that there must have been a case to answer because such a great authority, which has all the power of the state behind it, would not put out a notice without a reason.
	I really feel that we have to be much clearer about who makes the final call about whether to publish. Judging from the Bill, it seems to me that it is far too cosy and far too easy for the regulator to be making these decisions to publish. There are not nearly enough outside checks and balances to ensure that a proper assessment of the information and evidence is made available and assessed before a very precipitous, potentially exceptionally damaging disclosure is made. I hope the Minister will be able to go a long way to meet my noble friend's amendments.

Baroness Hayter of Kentish Town: My Lords, the starting point for my intervention on this group of amendments is our belief that consumers will benefit from transparency, contrary to the suggestions made by the noble Lords, Lord Deben and Lord Hodgson of Astley Abbotts, to help them make-

Lord Hodgson of Astley Abbotts: I do not think my noble friend Lord Deben and I said that we were against transparency. We said-or, at least, I said and I think my noble friend Lord Deben said-that we wanted to make sure that what was made transparent was accurate. Inaccurate transparency does not help anyone.

Baroness Hayter of Kentish Town: The assumption is-it has been said a number of times-"What if it is proved wrong?". However, many, if not most, of these will be proved right, and that transparency surely will be of enormous benefit to consumers and investors in a way that I hope to demonstrate.

Lord Deben: Every time it is proved wrong it will undermine the proving of right. Since when have we had a system whereby one says, "Because many people are guilty but have not yet been proved guilty, we shall assume that they are guilty"? That is what will happen if you say it only on the word of the investigator and there is no concept even of a CPS.

Baroness Hayter of Kentish Town: Perhaps the noble Lords will let me make my case and explain that. As was suggested by the noble Lord, Lord Flight, the purpose of my amendment in the next group is to address this issue and I hope that it will get support from across the House. It is about a different way of dealing with this and bringing to that independence a much higher hurdle for exactly the reasons that noble Lords have been talking about. I hope that when we come to that amendment it will receive wide support because I share the view about a greater degree of independence and separateness being needed. Nevertheless, transparency is a particularly important issue which we, as consumer representatives, feel was very restricted by Section 348 of FiSMA and the FSA's interpretation of this. I shall in a moment explain why we do not support the amendments of the noble Lord, Lord Flight, in the present group.
	Amendment 185B concerns warning notices in respect of procedures and referrals to tribunals and other issues. It would remove the requirement to consult with those about to be named before any warning notice is published. I find it hard to see why this requirement is in the Bill. It does not affect other walks of life. In criminal cases, ordinary people do not get consulted before they are arrested or charged but their names will be released. "Consultation", I fear, is code for, "Let the lawyers loose"-I apologise to noble Lords who are lawyers-and risks injunctions, stalling and long legal arguments. Why should the person who is to be named be given special rights? If it is right to publish, why should there be a block on publication? I hope the Minister will be able to justify that, given that tremendous consultation goes on already with the firm involved before one is even at the stage of a warning notice.
	On the amendments in the name of the noble Lord, Lord Flight, as, I say, we have sympathy with bits of them because of the lack of a second eye, independence and separateness, if you like, from the investigators within the regulation. The Bill empowers the regulators to publish the fact that a warning notice has been issued. This is of particular interest to the issue of misleading financial promotions. For consumers, it is a significant increase in transparency to know which ads have not only been looked at by the regulator but have been seen to be sufficiently misleading for consumers to know that an ad-which they may still have; they may have cut it out of a magazine or remember it from the television and it may still influence their purchase of a product-is under review. There could be considerable consumer detriment if the ad is still in their minds and they have not had a signal that the regulator is worried by it. That is one of the most important things to consumers.
	At an earlier stage of the Bill, the Government were not motivated to accept our worries about reliance on "buyer beware"-caveat emptor-but how can consumers shop around if the ads on which they are basing their choice of products are perhaps going through what can be quite a lengthy procedure? It can take very many months, and an advertising campaign can be quite short, and all that time consumers do not know that procedures are taking place that might affect their choice of product.
	In other areas, we know fairly quickly. If action is taken against a food factory suspected of contaminating food, we as consumers want to know immediately, and the Food Standards Agency lets us know straightaway when it is taking action. Similarly, if a garage had fixed a coach's brakes and was accused of doing it less than satisfactorily-some of us are grandparents-I would not want my grandchild to be on a coach where the garage was already up before the Health and Safety Executive for not having done repair work properly. Similarly, as a shareholder, I would want to know whether BP did have some liability for pollution in the Gulf of Mexico before I parted with money to invest in that company.
	There can be ongoing detriment if serious accusations are made and the people involved in parting with their money, as consumers or investors, do not know about it. I am not sure it was right that we heard nothing about LIBOR and the behaviour of banks until that first case was settled. Was it right that Equitable Life went on selling products even when there was a case pending? Many of the difficulties that arose were consequences of that ongoing sale. The first time these names came out there would be a lot of coverage in the press, but once we got over that hurdle-once we had got used to it and grown up-consumers are quite able to know the difference between an accusation and a finding. Keeping those hearings in the dark is quite against consumer interest.
	We hope that the Government will not accept these amendments, but that in the next group they will be rather more sympathetic to a different approach to dealing with how these decisions are taken. For the moment, I hope that they can support my amendment but hold fire on the others.

Lord Sassoon: My Lords, this has been a particularly interesting debate. These are very important matters because we are talking about important new powers that the Bill gives to the regulators.
	Of course I have some sympathy with what my noble friends are saying, but we have to recognise that the starting point is that there has been a huge amount of detriment over the years caused by the mis-selling of financial services. To talk in dramatic terms about human rights and people being proved guilty before they had had a chance to go through natural justice and so on is painting the picture from a completely wrong starting point. To be fair to my noble friend Lord Flight, who kicked off this group of amendments, those are not remotely the terms in which he came at this, so I do not bracket him in this. However, we have people who are quite properly setting out their interests but talking as if somehow everything was fine. It was not fine before.
	Certainly the regulators equally fell down on the piece, and we may be giving them a power that is difficult for them to handle. I recognise that, and I will deal with that as I go through the argument. However, I think that we must start from a recognition that things need to change and that we have to think whether we can do better than trying to sweep things up after people have lost very significant amounts of money. We need to tilt the balance slightly in these matters, but I completely agree that there need to be safeguards in place and that whenever you create a new power for a regulator, there are dangers if that power is not properly exercised.

Lord Deben: I hope the Minister remarked in my comments that my major criticism of regulators was that they did not intervene in a whole series of areas where they should have. My argument was that if it is in the public arena when they do intervene, the public will be even more convinced, as the history shows, that everything else is going okay. In fact, the regulator has fallen down again and again. Many of the worst examples-the ones that he and I would be most cross about-are those where the regulator has not intervened.

Lord Sassoon: Perhaps my noble friend could listen to the argument. He said that he has asked for examples on a number of occasions but there has not been a single case where the FSA could say, "This would have been a useful power". I have a long list of examples that the FSA could no doubt have given him. It includes the Winterflood market abuse case, where it tackled an illegal share ramping scheme, with warning notices issued in April 2007 but decision notices not issued until June 2008; the case of Gary Lester, a fraudulent mortgage broker, in 2008 to 2010; the Swift Trade market abuse case; and Atlantic Law and Greystoke. I could go on. I am sorry if my noble friend has been led to believe that there are no examples. The FSA can certainly give me examples. Of course it is important that there should be examples.
	I have made one or two remarks about the general situation-which is that the Government believe that a new power is merited and that we need to recognise that we are trying to deal with detriment to the users of financial services here while affording proper protections to market participants. However, before I come back to some broader points, let me address the amendments themselves.
	The first two amendments, Amendments 183A and 187A, seek to reverse a very specific change that the Bill makes to FiSMA, namely shortening the period for making representations after a warning notice has been issued from 28 to 14 days. We made this change in close consultation with the regulator, which noted that in many cases the 28-day window is not required at all. This may be because a case is straightforward and does not require such a long time for representations to be put together, because a person admits to the contravention or because that person does not respond at all. In such cases, having a mandatory 28-day period has the effect of unnecessarily slowing down the overall enforcement process, which is not in the interest of credible deterrence and the regulator's efficient use of its time and resource. That is why we have moved to a starting point of 14 days.
	I fully agree that firms should have adequate time to make representations. Although 14 days is the new minimum, it is important to note that it remains at the regulator's discretion to specify a longer period-for example where it knows a case is particularly complex. The regulator may decide to extend the period from the outset. The decision whether to extend the period will of course be governed by the principles of natural justice and Article 6 of the European Convention on Human Rights concerning the right to a fair trial. I hope that that gives some reassurance to my noble friend on the narrow point; that is, it is not a blanket 14 days.
	I am conscious that, in moving to the wider issue, we risk straying into the areas covered by the amendment of the noble Baroness, Lady Hayter of Kentish Town, which we are going to debate next, but I repeat that my starting point is very much the same as that of the noble Baroness; namely, we need to provide the regulators with this new power but to make sure that it operates proportionately.
	Amendments 185A, 185B and 186 are all concerned with the new power for the regulators to disclose the fact that they have issued a warning notice in respect of disciplinary action to a firm or individual. Amendment 186 probes an important issue relating to the disclosure of warning notices; namely, whether the new power should apply in respect of individuals or approved persons. There are two reasons why we included warning notices issued under Section 67 in the list in new subsection (1ZB). First, the warning notices concern what are very clearly disciplinary matters, relating as they do to contraventions or knowing involvement in rule breaches or contraventions of EU requirements, so it is consistent that they should be included here. Secondly, it is important to remember that this is a power, not a duty, and that the regulators will be required to consider whether disclosure would be unfair to the person concerned.
	Amendment 185B seeks to remove the requirement to consult from the power. I recognise that allowing warning notices to be disclosed is a major step change in regulation. It must be underpinned by proper procedures and safeguards. Consultation with the firm or individual concerned is key, because it is an important way in which the regulator can assess whether disclosure would be unfair and consider the possible impact of its actions. But I want to be clear that a requirement to consult the person affected does not mean that the FCA needs to seek their consent. That is clear and there is no getting away from it.
	Amendment 185A seeks to delete the entire new power and revert to the current arrangements in FiSMA. I restate that the power to disclose warning notices is a key part of our vision for the FCA. It enables the FCA to regulate in a more proactive and preventative way. I have given a number of examples where, in its judgment, these powers would have made a difference in the past. They make transparency and disclosure a key pillar of its regulatory approach and enable it to have a credible enforcement function and deterrence strategy.
	I do not agree with my noble friend Lord Flight about the read-across from the Standard Chartered case. I certainly agree with him and my noble friend Lord Deben-my noble friend Lord Hodgson of Astley Abbotts also touched on this-that there are real dangers in terms of the knock-on consequences which the FSA and the FCA will have to take into account, but that general proposition, which of course the regulators in the UK will have to take account of, does not make valid a direct comparison with the Standard Chartered case in the US. The power proposed in this Bill is substantially different in scope, safeguards and proposed application from the power used by the New York DFS in respect of Standard Chartered. I think that my noble friend recognises some differences, but our analysis is that the safeguards are materially different. So, yes, the FCA will have to take into consideration the impact of its notices, but I do not agree that we should pray in aid the specific details of the Standard Chartered case. It is important to be reminded and have on the record what my noble friends say-which is correct. For listed companies in particular, the share prices can and will react very negatively in these circumstances. If subsequently it happens with tax announcements that are somehow back-tracked and have been over the years by HMRC or the Treasury, the first effect on a share price is often much more negative than subsequently, when some decision or tax policy announcement is reversed. I take that point and I am sure that the FCA will be very mindful of it as it makes those decisions in the future.
	A number of other points have been made by noble Lords. As to the more specific challenge of my noble friend Lord Deben about what would happen if the regulator got it wrong, there is a general danger which the regulator needs to bear in mind before putting out a notice. Where the regulator decides to take no further action after it has made public the fact that it has published a warning notice, it has discretion to publish the fact that it has issued a notice of discontinuance if the person to whom the warning notice relates consents to that issue. Where the regulator has made public the fact that it has issued a warning notice but then decides that a case will not proceed to a decision notice, it will also make public the fact that a notice of discontinuance has been issued.
	There are various other questions about delay and injunctions. I do not agree that the power as drafted will cause overall delays to the enforcement process. The Bill does not require publication of the warning notice or of a decision whether or not to be published to be taken, challenged or appealed et cetera in order for the enforcement process to keep going. The only delay will be to the publication rather than to the action itself. That may not have been the point that the noble Baroness, Lady Hayter of Kentish Town, was making, but just to be clear: if it was, the underlying enforcement process keeps on going.
	Of course, the FCA might face injunctions to prevent publication and that is part of the protection in the injunction process. We also stress that, without a requirement to consult the firm or individual in question, it is more likely that that firm would seek emergency injunctions preventing publication as a knee-jerk reaction. Therefore, we have the consultation duty and the final decision is taken by the FCA. There could be an injunction process, but we think that the right balance has been struck.
	I could go on for a long time on this, but let me conclude. I hope that my noble friends will listen to the next bit, because I hear that, although we believe this is an important power, the question is whether it will be exercised properly and whether any further protection is needed. We are taking a bold new step in an untested direction and it has to be used responsibly. For that reason-and listening to this debate-I can say that we intend to return to this issue on Report in this one very specific way: that is, to make provision for a power for the Government to repeal the new warning notices power if at some point in the future the Treasury considers that the power or use of it by the regulators is, or may be, contrary to the public interest. This does not weaken in any way our commitment to this policy, or our belief that if used responsibly, which we expect it to be, the new power will form a vital part of the FCA's regulatory toolkit.
	I hope that what I have just said provides my noble friend with some reassurance that we will be mindful that the power is used in a responsible way which is in the interests of the greater good. Should that not be the case, we will act under a power which we intend to bring forward on Report.

Lord Peston: I admonish the Minister in a trifling way. It seems to me that the issuing of warning notices is enormously beneficial to those being regulated. That is one bit of a Bill that I do not like which I am totally in favour of. I am surprised that the Minister would even consider any backtracking on that. It is immensely beneficial to people to be told, "We are concerned about what you are doing and would like you to modify your behaviour so that it does not create a loss to the public interest". That is one of the really good bits of the Bill.

Lord Sassoon: My Lords, let me stress again that we are not backtracking at all. Our commitment to the new policy instrument remains extremely firm. It may be that the industry will come to take the view expressed by the noble Lord, Lord Peston. We will see. I have been struck by not only our debate this afternoon but our conversations in the run-up to it that because we are taking such a bold step, which I believe to be the right one and which I believe that the FCA will exercise properly, we should have the reserve power, which we do not have in the Bill, should things not turn out as I and the noble Lord, Lord Peston, expect.
	I hope, on the basis of that explanation of our intention, that my noble friend will feel able to withdraw his amendment.

Baroness Hayter of Kentish Town: My Lords, would that happen by an order that would come back to this House, or would it just be by Treasury decision? That is a big power to take away without parliamentary scrutiny.

Lord Sassoon: My Lords, I said that we intend to come back to the House on Report with a power to reflect the concerns that have been expressed. As to how the power will operate, noble Lords will see a draft of what we are considering in good time before our debate. For a power of this importance, I would expect it to be in secondary legislation subject to the affirmative procedure, so there will be an opportunity to discuss the repeal in this House, but let us see it when it is drafted.

Lord Flight: I am not entirely clear where the Government are. As I understand it, the present situation is very satisfactory. If the FSA thought that the noble Lord, Lord Peston, had been a naughty boy, it would have a word with him and tell him so. It might make that notice public but, first, there would be a fair judicial inquiry into whether what was alleged by the FSA was correct and accurate. That is handled by the Regulatory Decisions Committee.
	I cannot understand why the Government want to sideline the RDC, because it seems to me to be the check on accuracy and fairness. The issue about warning notices being public is that, in today's world, if it is made public that the FSA has warned the noble Lord, Lord Peston, that it thinks he is conducting his business dishonestly, his career and reputation are dead. He is a guilty man: strike his head off, basically. We are living in that sort of world, which is why it is a serious matter.
	If the Government are saying that they are very happy to have an independent judicial process before warning notices are published and as I understand the amendment that the noble Baroness, Lady Hayter, has tabled, which we are coming on to debate, then I have no problem, but I am extremely uncomfortable at the officers of the FSA being able to gang up and publish warning notices themselves.
	I have experienced indirectly a number of examples where, to be candid, the accuracy and research of the FSA has been questionable. I know one business that was raided and accused of insider dealing. Eventually the alleged insider news was shown to have been in the newspapers three weeks previously. The situation was that someone on the wrong side of a takeover battle wanted to get at somebody because they thought that they would vote their shares the other way, so they phoned the FSA and said, "We think so-and-so has been insider dealing", and the FSA went roaring ahead without checking at all. I am afraid I have encountered other situations where the FSA has not been professional in putting together its case and checking it before taking action.
	Therefore, I am concerned that, if it is just left to an individual and their chums in the FSA to go ahead and publish warning notices without any sort of fair judicial review, there is scope for injustice. It is not helpful to the consumer either because, if the FSA is subsequently proven to have got it wrong and to have been unfair, it damages its own reputation.
	I am not quite clear where the Government are coming from because of this unfortunate division of the amendment of the noble Baroness, Lady Hayter, which is yet to come, and this group of amendments. If the Government are to support some form of alternative fair judicial process, I think that everyone in the Committee will be happy. If they are not, I think that quite a lot of people will be less than happy.
	I merely ask the Minister whether there is an intent to have some form of judicial review, as we are about to debate. Without some knowledge of that, it is not possible to know how to react to the comments.

Lord Sassoon: All I can say to my noble friend-which I hope he would expect me to say-is that I am not going to pre-empt what I hear in the next debate. I want to listen to the next debate and hear what the Committee has to say. I am not responsible for the groupings here.

Lord Flight: In anticipation thereof, I shall withdraw my amendment but, if it is not dealt with satisfactorily, I intend to put it to a vote at Third Reading.
	Amendment 183A withdrawn.
	Amendments 184 and 185
	 Moved by Lord Sassoon
	184: Schedule 9, page 233, line 18, leave out "and"
	185: Schedule 9, page 233, line 19, at end insert ", and
	(c) for "a final notice" substitute "the notice required by subsection (2A)".
	( ) After that subsection insert-
	"(2A) The notice required by this subsection is-
	(a) in a case where the regulator is acting in accordance with a direction given by the Tribunal under section 133(6)(b), or by the court on an appeal from a decision by the Tribunal under section 133(6), a further decision notice, and
	(b) in any other case, a final notice."."
	Amendments 184 and 185 agreed.
	Amendments 185A to 186 not moved.
	Amendment 187
	 Moved by Lord Sassoon
	187: Schedule 9, page 234, line 30, at end insert-
	"( ) In subsection (7A), for "the Authority" substitute "a regulator"."
	Amendment 187 agreed.
	Amendment 187A not moved.
	Amendment 187AA
	 Moved by Baroness Hayter of Kentish Town
	187AA: Schedule 9, page 235, leave out lines 30 and 31 and insert-
	"(1) Each regulator will establish and maintain a committee (referred to as the "Determinations Panel").
	(2) Each regulator must appoint a chairman of the Determinations Panel.
	(3) The chairman of each Panel must-
	(a) decide the number of persons to be appointed as the other members of the Panel; and
	(b) nominate a person for each of those appointments.
	(4) Each regulator must then appoint as the other members of the Panel the persons nominated by the chairman of the Panel.
	(5) The following are ineligible for appointment as members of the Panel-
	(a) any member of the relevant regulator;
	(b) any member of staff of the regulator;
	(c) any employee of Her Majesty's Treasury.
	(6) Each Panel may establish sub-committees consisting of members of the Panel.
	(7) Each Panel will be responsible for the following-"

Baroness Hayter of Kentish Town: My Lords, in addition to the reasons that we debated in the last group, there are two main reasons behind this amendment. I hope the Government will consider this amendment seriously, as I believe it will have widespread support across the Committee, as well as from the industry and the wider public.
	One reason is to give some certainty that regulatory issues, or discipline, will be dealt with in an open and transparent way and not simply according to procedures chosen and operated within and by the regulators who are themselves bringing cases to a body for determination.
	The second reason is to bring some independence to these hearings to give confidence to those against whom regulatory measures are to be taken that they will have a chance for a fair, objective second hearing-a hearing by people who are apart from, and indeed independent of, the regulator's staff. We know from the FSA's history that such independence was not always there. Although there is now the Regulatory Decisions Committee, it is not guaranteed in statute. Indeed, I know that, partly thanks to some ideas floated on the FSA website, there has been much concern that the RDC may not even continue under the new architecture. However, surely the existence of such a body should be clearly set out in the Bill so that it cannot simply be abolished or amended by the regulators.
	I should add, reflecting what happened in the previous debate, that the fairness of the new power of the FCA to publish its warning notices-a power which, as the Committee will have heard, I strongly support-has been made explicitly contingent on the continuing existence of the RDC's involvement in decision-making; hence the concern that such a committee might be abolished without parliamentary agreement. In defending the proposal to allow it to publish warning notices before the formal enforcement process had taken place, the FSA noted that all proposals to exercise regulatory powers are currently taken to the RDC to determine whether there is a case to answer. That is just the first stage-having a case to answer. Furthermore, the FSA's then head of enforcement, Margaret Cole, said that a warning notice is,
	"quite some significant way down our process for holding people accountable. It is a moment when we have looked at the case in detail, taken it to an internal committee and reached a conclusion that there is a case to answer".
	That is the process on which I am focusing.
	The central role of the Regulatory Decisions Committee in providing an independent source of challenge to the FSA's executive was regularly cited in evidence to the pre-legislative Joint Committee and to the Treasury Select Committee. The FSA's current arrangements are, I believe, robust and effective, having been refined by experience and as a result of the Strachan review of its enforcement processes. However, we cannot assume that the protections afforded by the current framework will simply be transposed into the new regulator's governance arrangements. The current FSA proxies for the new regulators have shown a keen appetite for exercising their judgment and discretion to intervene swiftly and decisively. I welcome that but I am aware that within the industry there are serious concerns that the FSA has, in anticipation of its new powers, begun to exploit the absence of a specific statutory requirement for the RDC.
	Any erosion of these profoundly important checks and balances will not benefit consumers and will risk eroding confidence in our regulatory system. Given the explicit significance that has been attached to delivering fairness in respect of the new powers, they should not be left to the discretion of the regulators to carry forward but be embedded in statute and endorsed by Parliament. It is for this reason that I propose that the essence of the FSA's regulatory decision-making processes should be captured and embodied in legislation.
	The proposal in Amendment 187AA, as the observant among the Committee will notice, follows the model of the Pensions Regulator set out in the Pensions Act 2004. Although I was not in the House at the time, I believe that drew partly on the lessons of the slightly less than satisfactory FSA model. I have to declare a past interest as a former member of the Pensions Regulator's determination panel. However, I know from discussions with present and past RDC members and from one who has served both on that determination panel and the FSA body that the pensions model is seen to offer greater independence and scrutiny of cases brought by the respective regulators. That is partly because it cannot be abolished, partly because its members have to be independent of the regulator and partly because it is in primary legislation.
	The exact formulation of the equivalent formats for two such bodies as the PRA and the FCA may need a trifle more perfect drafting than I have managed in this amendment. However, for today, will the Minister consider carefully the principle that these big decisions, which can have great impact on individuals or financial firms, should be taken by a specialist independent panel, albeit appointed by the relevant regulator, to ensure a highly knowledgeable and expert group of decision-makers? I beg to move.

Lord Sharkey: Will the Minister clarify a point in sub-paragraph (3)(b) of paragraph 28 in Schedule 9, which would survive whether or not the amendments of the noble Baroness, Lady Hayter, were accepted? The sub-paragraph adds to the sentence in FiSMA the words,
	", or by 2 or more persons who include a person not directly involved in establishing that evidence".
	The whole paragraph now reads:
	"That procedure must be designed to secure, among other things, that the decision which gives rise to the obligation to give any such notice is taken by a person not directly involved in establishing the evidence on which that decision is based, or by 2 or more persons who include a person not directly involved in establishing that evidence".
	FiSMA already permits a procedure that allows, in certain circumstances, the decision to issue a notice to be made solely by a person directly involved in establishing the evidence on which that decision is based. Why has the Minister felt it necessary to change this? Why, in particular, regularly allow the decision to issue a notice to be made by a person directly involved in establishing the evidence for the notice if he or she can persuade just one other person to agree? Does he have a particular type of case or set of circumstances in mind that would make this desirable or necessary, or is there some now apparent defect in the current regime as exemplified within the FSA by the Regulatory Decisions Committee?

Lord Deben: I hesitate to return to the previous discussion, but I just remark to my noble friend the Minister that his whole list of examples of what this might have prevented of course misses the point. My point was that we could have done all those things with the RDC. The real question is: who makes that decision? I have never had an explanation of why it is necessary to have a power that is never referred to any independent group. That is all I am interested in and I feel very strongly about it. We have recently been trying to complete a very valuable thing called "treating customers fairly". I want all customers to be treated fairly, and I entirely agree with the speech of the noble Baroness, Lady Hayter, who is absolutely right.
	I say to the Minister very personally and directly that when one of those most likely to be a senior regulator tells the industry that he intends to shoot first and ask questions later, he should understand why the industry has some concerns. That is all I say. All I am asking is that before such a decision is made, there should be reference to an independent body, and I think that the proposals put forward-albeit, as the noble Baroness rightly said, that they might need a little tweaking here and there-would seem to everyone to be fair.
	We have the same situation-parallels have often been drawn-in police prosecution when someone outside asks whether this is a proper circumstance and whether it is likely to stand up. That is all that is necessary. Do that and most of us, I think, would be perfectly happy. Our issue is that, without making things more difficult in these debates, there are too many examples of decisions made that appeared to be hasty and when people have not looked too carefully at the details. This would make sure that they do.
	All I say to the Minister is that he would have pretty overwhelming support for the changes that he wants if he were prepared to do what the noble Baroness has put forward. I would certainly be happy to argue that. If he does not do that, this will be difficult to support, and I am interested in the point that my noble friend has just made that there seems to have been an attempt to move even further away from what we should have.
	I have one other point. The key thing is that the murmurings that somehow the RDC will disappear would be overcome by having this measure in the Bill. It is not unreasonable to have the concerns that people have, and I have not yet seen why introducing this measure would make things more difficult or less transparent. I would be happy to take the risk of people being warned and turning out to be guiltless, if it were done with this degree of protection. Then the Minister would have us all on his side.

Lord Hodgson of Astley Abbotts: My Lords, the noble Baroness's amendment has much to commend it. I picked up two points in her comments. On the question of, to use her words, eroding confidence in the regulator, that confidence is already being eroded at present because of the way in which the regulator is behaving, and her proposal would go some way towards ensuring that that was put right. She and I can agree, because we have already agreed on the importance of transparency, that this would achieve not only transparency but, particularly, accurate transparency, and that someone would not be condemned without having had a proper chance to put their side of the case. Like my noble friend Lord Deben, I think that there are some tweaks to be made to the terms of office and so on, but as a concept this has much to commend it.

Lord Flight: My Lords, all that I was really calling for previously was for the RDC to be embodied in statute to provide this role. The amendment proposed by the noble Baroness, Lady Hayter, offers something rather better because it is a duly organised and independent body that would provide the safeguard of justice. That, it seems to me, is what we all want.

Lord Peston: My Lords, I support my noble friend's amendment, but I would like to place it in context. I start from the position that the Minister started from when he reminded us that the Bill and these regulators have not been picked like a rabbit out of a hat. There was a problem to be solved and this, even though I do not like aspects of it, is the Government's best attempt to solve it. There was a problem in this sector of the economy, the public demanded that something be done to prevent it from happening again and the solution is regulation. Since the only alternative solution that I know about would be to nationalise the whole of the financial sector, which I would not favour, the Government are clearly doing the right thing in broad terms-even though, I repeat, there is a lot of this Bill that I do not like.
	The second aspect of the context is the old adage, "Quis custodiet ipsos custodes?". The trouble is that once you go down that path, you get an infinite regress; whoever you set up to regulate the regulators, you then ask, "Who's going to regulate them?", and it goes on for ever. We ought to bear that in mind.
	My general point is that, while I hope that the Government will either agree precisely to my noble friend's amendment or come up with a suitably tweaked amendment of their own, we should not be naive about this. The moment the regulator starts looking at any particular organisation-and certainly when it starts considering, suggesting or indeed issuing a warning notice-the idea that this will not leak out is a bit on the naive side, to put it bluntly.
	Although I support my noble friend's amendment, I think she will agree that it does not protect us from the world in which we live, a world in which there is, in a sense, money to be made by leaking secrets. I believe that the Government ought to go down the line suggested by my noble friend and respond sympathetically, but whether or not I live long enough to see the first case that arises, I would not be in the least surprised if the first warning notice gets leaked within minutes of being sent. That should not stop my noble friend from going ahead with this, but it illustrates that some of us are rather cynical when it comes to what happens in the world in which we live.

Lord Turnbull: Can the noble Baroness clarify for me what right the accused has to make representations to this committee? Does it simply take the presentation of a case from the FCA and examine that for its strengths and weaknesses, or is representation from those accused of the regulatory breach built in? To answer the noble Lord, Lord Peston, it is a criminal offence to leak the existence of a decision notice before its appropriate time.

Lord Sassoon: My Lords, I go back to the overall picture on this and to the previous group of amendments. This is a necessary area of additional powers that must be in the authority's armoury. We will take a power to look at the whole thing again if it does not operate properly. However, on this specific amendment, we are probably all agreed-this is where I can be sympathetic if not positive in response to the challenge by the noble Lord, Lord Peston-that it is necessary for there to be appropriate checks and balances. The question is whether we can rely on the judgment and good sense of the successor regulators to do appropriate things without having the stick of legislation on them. In this specific area, everyone seems to have plenty of criticisms of the FCA, many of them justified. However, the Regulatory Decisions Committee was established by the FSA, although it is not required in statute.
	I understand why people are nervous about what the successor bodies will be putting in place, but it is important to recognise that the RDC structure-which everyone this afternoon seems to love and wants to hard-wire into the legislation in some form-was put in place by a regulatory body that was given a broader remit, used its judgment as to how best to have this independent challenge and scrutiny of decisions, and put that in place. Now we are saying, which I do not agree with, "Well, the FSA did such a good job in putting it in place that we are not going to trust it to exercise appropriate judgment on your successor's shape, so we need to hard-wire that in".
	My starting point is that the authorities will establish appropriate procedures. This afternoon we are very much talking about the FCA side of it. What is appropriate for one authority is not necessarily appropriate for the other successor authority. While I am of course sympathetic to the end objective here, the question is what it is necessary to put in place that goes beyond the current framework within which the FSA established the RDC, which people like. I believe that it is appropriate to leave the successor authorities to make their own decisions on this point.
	We agree that significant decisions should be subject to appropriately robust decision-making processes and that, for the avoidance of doubt, the significant regulatory decisions should be made with the involvement of individuals who did not collect the evidence in support of the decision. That would ensure that such decisions are subject to scrutiny by a suitably wide group of people in each authority and it is an important reassurance to firms that decisions having a significant effect on them will be subject to due process and consideration.
	However, as I have explained, we believe that it should be up to the successful authorities to decide how they do that. That would be consistent with the broad thrust of this legislation, which is that we set the outcomes we want to achieve and leave it up to the independent regulators to establish the detailed processes within them. After all, we want to move to a much more judgment-based decision-making process in the new regime. As the FSA has previously exercised judgments which the Committee is approving of today, we should leave it to the authority in the future.
	My noble friend Lord Sharkey made an important point. There is a difference between the remit as proposed by the Government and the remit in FiSMA, and there is an element of additional protection. Of course, it still leaves room for the successful authorities to set up other structures. However, we believe that the change to which my noble friend referred was appropriate to accommodate the approach of the PRA in which senior managers may become quite closely involved in discussions with firms and in setting the direction of supervisory strategies but may also be involved in taking some of the decisions that are governed by Section 395 of FiSMA. That is essential if we want to empower the regulator to supervise on the basis of judgment and for senior staff to use their knowledge, experience and expertise to contribute to difficult decisions.
	Amendment 187AA would make such an approach impossible. Recognising in particular the different circumstances of the PRA, it is appropriate to put in a necessary piece of additional backstopping. In summary, both authorities will still be required to establish clear procedures for making significant supervisory decisions, which will be subject to the requirements in Section 395(2) as amended by the Bill. I believe that it is wrong to require such a determination panel in statute and for it to be applied to all the significant decisions of the FCA and the PRA. Equally, as the authorities consider prospectively what their distinctive approaches will be in these circumstances, I am sure that they have heard loud and clear particularly how in the case of conduct matters an approach like that of the current RDC finds considerable favour in the Committee. I have no doubt that account will be taken of that as it comes to define the processes going forward.
	Having heard all that, I hope that the noble Baroness will consider withdrawing an amendment that hardwires these very important matters-although I am very sympathetic-to what would become a statutory provision.

Lord Barnett: I suppose that I should not be surprised. The noble Lord has heard a very serious case made from all sides of the House and he cannot even bring himself to say that the Government will at least consider a possible amendment which may not be exactly the same as that which my noble friend suggests. I suppose that the regulators, the new FCA, may be perfect and will never make a mistake. But as regards this modest little amendment, he could at least say, before my noble friend perhaps seeks to withdraw, that the Government would be willing to consider it. Can he not even say that?

Lord Sassoon: With all due respect to the noble Lord, this slightly misses the point. As I have explained, within much the same remit under FiSMA, to which we have added one additional piece of protection, the FSA exercises the judgment and comes up with the structure that this Committee seems broadly happy with. It is entirely fair and proper to allow the successor body the space to come up with a decision which finds approval in decisions that were previously taken about this structure. Therefore, based on our approval of how it has done up to now, we should have confidence that it will do it again. It has heard loudly and clearly the support that your Lordships will give it if it takes that approach.

Lord Peston: I am really lost as to what the Minister is saying. Apart from the fact that he was made a very good offer-I would have thought that the Minister, in his right mind, would never reject a good offer-is he saying that this amendment is not needed because the regulators could set up committees of this sort themselves with no statutory powers behind them and that they can do exactly what is in this amendment already? Can he guarantee that it is right that each regulator can set up a committee so the only difference is that we are saying that they must and he is saying that they can? For the record, is that what he is saying?

Lord Sassoon: I am sorry that I have not been sufficiently clear. Yes, that is exactly what I am saying. In fact, I am saying more than that. Within the very similar provision for FiSMA, that is exactly what the FSA did. Not only can it do it but it has a track record of having done that. I think we should trust it to do whatever is appropriate again.

Baroness Hayter of Kentish Town: My Lords, I am extremely disappointed. We come back to "may" and "must", which my noble friend mentioned. He has just had a birthday and he is still talking about "may" and "must". If the FSA had not put on its website that it would not continue with this, perhaps our trust that it would continue with the RDC would be greater.
	I confess that I have some form on this. In 1981, I worked on a Royal Commission on criminal procedure which tried to persuade the police that they should take their cases to an independent prosecutor. The Committee will not be surprised to hear that they did not want that to happen. In the Labour Party, it used to be the NEC that took cases against individuals. We were taken to court and told that we could not do that, so I ended up on the disciplinary committee to ensure that that was separate and independent of the National Executive Committee of the Labour Party. The barristers did not get it right and for a time the Bar Council used to use the same body to discipline its members and was taken to court. It had to set up the BSC complaints committee-that is another declaration of interest as my partner was vice chair or something of that-to ensure that there was that independence among the people who were presenting the cases and those hearing them. Whether there are two panels-one to see whether there is a case to answer and one to hold a hearing-is an issue of detail which I did not go into. I think that is for regulator. To trust the regulator, who is, if you like, the prosecutor-I do not like using the word "prosecutor" but perhaps we can bear it for the moment-to decide what sort of committee will challenge its evidence, seems to me not quite the correct way to approach this.

Lord Deben: One might go as far as that had it not been for two facts: one, to which the noble Baroness refers, is the website; and the other is the fact that a senior person, who is likely to be a regulator, said that his policy was to shoot first and ask questions later. That severely worries people. Whatever happened in the past, we need to remove doubt. As the Minister suggested that it does not really make any difference because he expects that to happen, I cannot see why it would make any difference if you were sure that would happened.

Baroness Hayter of Kentish Town: I could not have put it better, although I quite like to shoot first and ask questions after, but that is just a personal preference. As my noble friend Lord Barnett has said, there is clear support for this around the House. We are obviously going to bring it back at the next stage. If it is easier for the Minister, perhaps someone not from this side but from his side could put his or her name to the amendment. But for confidence in this type of independence it seems clear that the decision cannot be in the hands of the regulator who is also the presenter. There should be some guarantee that it is an independent body. I am extremely worried that someone who has been investigating could also be the decision-maker. That seems to go quite differently from other groups. So I am afraid we will return to this but for the moment I beg leave to withdraw the amendment.
	Amendment 187AA withdrawn.
	Schedule 9, as amended, agreed.
	Clause 35 : The Financial Services Compensation Scheme
	Amendment 187AB
	 Moved by Baroness Hayter of Kentish Town
	187AB: Clause 35, page 119, line 27, at end insert-
	"( ) Within 30 days of the coming into force of this Act, Her Majesty's Government shall inform the governments of the European Union of the United Kingdom's desire that the EU limits on financial compensation for charities affected by the loss of retail banking deposits should be reviewed."

Baroness Hayter of Kentish Town: Let us hope I have a little more success with this one, which is completely different. Amendment 187AB concerns the limits-currently £85,000-for compensation which can be awarded by the Financial Services Compensation Fund. As the Committee will know, this is not a complaints-type award for mis-service but compensation following the insolvency or similar of a financial service company. While £85,000 may be suitable as a limit for individuals, since not many of us have that much in our bank accounts, it is clearly insufficient for charities. Charities are greatly at risk but normally being only the holders of cash rather than other sorts of fixed assets they are unable to protect themselves against the risk of losing all their money. Under the Government's proposed banking reforms in the draft Financial Services (Banking Reform) Bill published on Friday one change would put a significant number of charities at financial disadvantage. The depositor preference principle would ensure that all deposits which are eligible for compensation under the FSCS would be made preferential debts-although most charities will not fall into that category-so that if there was an insolvency of a bank these smaller ones would rank ahead of the claims of other unsecured creditors. This means that charity deposits will rank further down the creditor hierarchy. Thus charities would risk losing a higher proportion of their deposits should a bank go under so, clearly, alternative ways are needed of granting fairer protection for charities.
	The NCVO and the Charity Finance Group have considered the matter carefully. Ideally, they would like charities to be preferred creditors-which I recognise would not be an issue for this Bill-or else for there to be a different limit for charities. However, the advice of Her Majesty's Treasury is that that would break EU fiscal rules-hence the particular wording of Amendment 187AB to ascertain whether that objective could actually be achieved. One way would be to introduce a higher compensation limit for charities. The current £85,000 may be suitable for small charities but clearly it is pretty meaningless for ones such as Oxfam or Save the Children which have millions of pounds in the bank. It is really not big enough. The sector as a whole probably has about £18 billion in cash deposits, so the consequences and impact on beneficiaries would be extremely serious if even a small proportion was lost.
	Earlier this year in response to the White Paper on banking reform the voluntary and charity sectors called on Government to grant registered charities preferred creditor status so that charities' liabilities are prioritised alongside those of the Financial Services Compensation Scheme in the event of a bank failure, but the Government felt unable to accept that proposal. Perhaps there should be no cap at all for charities, although we also understand the effect on levies that that option would have.
	Any losses to charities would have a devastating impact on those they support, who are usually the most vulnerable in society. The Icelandic bank experience caused ongoing concern to charities and their trustees. In tabling this amendment we seek to ask the Government to find a way forward to protect this vital part of the big society and the third sector. I beg to move.

Lord Peston: My Lords, in supporting my noble friend's amendment, I say that I am a strong supporter of the European Union, and that I hope one day to live in a country where the Government is also a strong supporter of our membership of the European Union-something that has not been the case for many years. I refer not just to the present Government but to the previous one. However, although I regard myself as a supporter of the European Union, I am well aware that often it drips into areas that are none of its business. When I first saw the amendment, I thought: what possible grounds are there for the European Union to consider supporting charities, let alone setting limits on how they can be supported? I assume that this is a probing amendment, although my noble friend has not told me so. Really the European Union has no business to be in this field; that is the message we would like to get over.

Lord Hodgson of Astley Abbotts: My Lords, my Amendment 187CA in this group relates to another aspect of the operation of the Financial Services Compensation Scheme. The current wording by which the scheme operates gives it a lot of discretion in the way that the costs of the scheme are allocated. Section 213(5) of FiSMA states:
	"In making any provision of the scheme ... the Authority must take account of the desirability of ensuring that the amount of the levies imposed on a particular class of authorised persons reflects, so far as practicable, the amount of the claims made, or likely to be made, in respect of that class of person".
	There are two get-outs.
	I make it clear that this is not about restricting the rights of consumers to obtain compensation. It is a critical and essential part of maintaining proper confidence in our financial system that there are proper and appropriate ways for people to claim and get compensation for mis-selling or other malfeasance. However, the amendment is about ensuring that the polluter pays. It has become more difficult in recent years to trace the allocations and levies made by the Financial Services Compensation Scheme to the particular class of persons and businesses to which they have been applied. Often, there appears to be a shifting of the pea around the plate, with a disproportionate share landing on those perhaps least able to complain. I hope that my noble friend will listen to the amendment with sympathy. The funding system must reflect the differences in risk and instability posed to the public and to the wider economy by firms and the financial products they offer.
	I make it absolutely clear that my amendment does not enforce an unacceptable level of correlation. The words "as far as practicable" will remain, and will therefore provide the scheme with a degree of flexibility-a get-out, if you like. However, the additional words, "take account of the desirability of ensuring", are too woolly. They lead to situations where people feel that the scheme is not operating fairly. Therefore, I would like to see those words replaced by the single word, "ensure", as a means of ensuring that the Financial Services Compensation Scheme penalises the polluter and not the wider financial community.

Lord Newby: My Lords, Amendment 187AB, moved by the noble Baroness, Lady Hayter, would require the Government to notify other EU member states that the limits on compensation payments to charities in the event of a loss of their bank deposits should be reviewed. The noble Lord, Lord Peston, asked what on earth this had to do with the EU. I suspect that he, like me, had not heard of the deposit guarantee scheme directive, which is an extremely valuable piece of legislation. It means that across the EU there is a maximum harmonised limit of compensation per depositor in the case of banks or other financial institutions going bust. It makes sure that across the EU there is a common framework for paying out when organisations get into financial difficulties.

Lord Peston: The Minister said that that was a very good idea. I cannot imagine why it is such a good idea. What business is it of the European Union what the taxpayers of an individual country decide they will spend on compensating people who have lost money because of the misbehaviour of banks? Why is it a European issue? I do not want to pursue this because it is a European question that is broader than what the Bill is about. I merely made the rather tart remark that occasionally the overpaid officials in Brussels have to justify their overpaid existence by finding things to do. Otherwise, they might eventually be asked to retire-although I might say that then they get incredibly good compensation arrangements. I was just being my normal tart, nasty self.

Lord Harrison: My Lords, I came to listen to the Statement. However, it may be of interest to some of my colleagues that we on Sub-Committee A of your Lordships' European Union economic and finance committee are studying the banking union proposals and the recovery and resolution directive. The deposit guarantee scheme is an integral part of Herman Van Rompuy's proposals, and of the response that we have got from the four presidents. That is the reason I am here today. I was slightly taken aback when my noble friend Lord Peston mentioned charities. As I understand it, the deposit guarantee scheme is a separate matter. The proposal has yet to mature. This will be done in Brussels over the coming weeks and months. I do not know whether that helps.

Lord Newby: My Lords, it is extremely helpful-and it will be done over the coming months. First, it is a single-market measure, not a eurozone measure. The aim is to establish a level playing field for consumers across the EU that is funded not by the state but by the financial services sector wherever the scheme is in operation. This means that as people move around the EU, as they increasingly do, they will know that they will get broadly the same degree of consumer protection wherever they are. That is a good idea, not a bad one. However, whether it is a good or a bad idea, this is the framework within which the deposit protection level operates in the EU, and therefore in the UK. Within the discussions about the directive that are going on at the moment, the level of compensation and the bodies that are eligible for it are being considered.
	I say to the noble Baroness that we have listened very carefully to her concerns, and that the Government will consider whether it is appropriate to review the eligible limit to charities in the context of our overall negotiating priorities on this proposal. This is just one of a number of issues that we are considering in the round and as part of the negotiating posture we will take up. I assure her that we will give careful consideration to whether this is the way of achieving what she wants to achieve.
	I move on to Amendment 187CA in the name of the noble Lord, Lord Hodgson of Astley Abbotts. This amendment would amend FiSMA to require the regulators to ensure that levies imposed on a particular class of firm reflect the claims made, or likely to be made, on that class. Before I address this amendment directly I would like to use this opportunity to draw noble Lords' attention to the fact that a draft of the statutory instrument allocating rule-making responsibility for the FSCS between the two regulators will be published on the Treasury's website this week as part of a broader consultation on draft secondary legislation required by the Bill. I will place copies of this paper in the Library of the House.
	I am not entirely convinced by the case for Amendment 187CA. FiSMA already requires the regulators, as the noble Lord, Lord Hodgson, said, to take account of the desirability of ensuring that the amount of levies imposed on a particular class reflects, so far as practicable, the amount of claims made, or likely to be made, in respect of that class. Ensuring that classes are levied in a way that fully reflects claims, or likely claims, as proposed in the amendment is likely to be an impractical and disproportionate approach to evaluating how the fund should be funded. The current drafting in FiSMA reflects my noble friend's concern but also leaves sufficient flexibility for the expert regulators to use their judgment.
	The FSA's recent consultation document on its funding model in the new regulatory system gives a good indication of the complexity involved in determining the funding model of the FSCS. I have it here, and its 100-odd pages demonstrate that this issue is somewhat more complex than might immediately be apparent. It demonstrates, among other things, how difficult it would be to ensure, in any strict sense, that levies fully reflect claims, or likely claims, on a particular class while delivering a fair and equitable scheme.
	I suggest to the noble Baroness that the correct way to address her concerns is to contribute to the consultation on this document, which is open until 25 October. On that basis I would ask her to withdraw her amendment.

Baroness Hayter of Kentish Town: I thank the Minister rather more positively than I did his colleague on the previous amendment. It appears clear that he and the Government have understood the problem and I thank him for agreeing to look at this again. Charities of course, unlike people, do not move around; British charities are only in this country. I thank the Minister for saying that they will look at that. If it is not possible by that method, perhaps he could ask others in the Government if there is another way to assist. That would be extremely helpful. On the basis of that offer I beg leave to withdraw this amendment.
	Amendment 187AB withdrawn.
	Clause 35 agreed.
	Schedule 10 : The Financial Services Compensation Scheme
	Amendment 187B
	 Moved by Lord Sassoon
	187B: Schedule 10, page 239, line 33, at end insert-
	"( ) In subsection (7), omit "board members,"."
	Amendment 187B agreed.
	Amendment 187C
	 Moved by Lord Teverson
	187C: Schedule 10, page 240, line 12, at end insert-
	"(5A) In making any provision of the scheme under subsection (3), the relevant regulator must so far as practicable establish classes of authorised person on which levies may be imposed such that the claims that are likely to be made in respect of that class of person share a close affinity.
	(5B) For these purposes, a claim shares a close affinity with another claim if both the nature of the services or activities and the type of financial instruments in relation to which the claims arise exhibit a high degree of similarity."

Lord Teverson: I can see that everybody wants to discuss the Statements on Europe and the potential independence of Scotland, so I will try to be brief. However, I say to the noble Lord, Lord Peston, that I have heard of the deposit guarantee schemes directive as well as the investor compensation schemes directive, both of which the Commission published in 2010 but neither of which has got anywhere very much since last year. The two directives have held up much thought around the financial services compensation service.
	In this amendment I am trying to put into primary legislation a key principle regarding the close affinity of organisations which must help to compensate when other organisations have gone into liquidation or cannot meet their obligations to their customers. I am also putting down two tests: the first concerns the similarity of the service and the second the similarity of the financial instrument. Many Members will be aware of the history of this in that the Financial Services Compensation Scheme does make levies. In fact, in the fund management area it can ask for up to £270 million with 30 days' notice, and indeed last year £233 million was called up, which is estimated to be 4% of the turnover of the total sector. Those of us who have worked in business will know that if you suddenly take 4% of your turnover out of the business, through a statutory note or the equivalent of a tax or a notice, it can hugely affect your business. The largest problem was key data resulting in a quarter of a billion pounds' compensation having to be found, and it was a major problem. There have been a dozen smaller cases, and in the past five years there has been £600 million compensation involving investment intermediaries. In those cases of failure the overwhelming burden fell on the fund managers and independent financial advisers, who paid for the damage of what often were issues from spread betting, unquoted shares and life settlement portfolios. In practice there was a lack of affinity. There is also a question of what happens when regulators themselves have not been as good as they should be in ensuring regulated and authorised persons have worked responsibly in the past.
	The EU has come to an end of its consideration of this area but the FSA's consultation, launched in July, is advocating very much the same sort of compensation scheme except that it would effectively divide the scheme between the organisations regulated by the PRA and those regulated by the Financial Conduct Authority. What that means, if it happens, is that banks and insurers will not face compensation claims for the sale by intermediaries of their own products. Such claims will fall back once again on the FCA pool, which includes investment managers. This amendment attempts to find a solution by saying that the affinity has to be very much closer than it has been and that offenders from a similar risk sector should pay the compensation rather than those from more broadly related sectors. If the problem is too large the solution must be to go into a much wider pool, which includes both the PRA and FCA-regulated businesses. I beg to move.

Lord Flight: My Lords, I speak briefly in support of this amendment. Key data did actually expose a great deal of feeling of unfairness among different parts of the industry. The point was made about the heavy burden on fund managers but SIPP administrators, who are purely administrators and not involved in managing money, are for some reason lumped into the same category as fund managers. There is a very substantial burden on their resources. The whole area wants looking at, particularly if we are increasingly to become a compensation culture and if the sorts of amounts expected from the scheme are going to grow and grow. There is quite a problem and quite an issue to address in deciding how to cut the cake in deciding who, in fairness, should pay what.

Lord Newby: My Lords, this amendment seeks to remove the possibility of any element of cross-subsidy between different classes of authorised firms. We do not feel that it is either necessary or helpful. We do not consider that the practice of allowing some cross-subsidies between classes is inherently wrong, and nor should it be prohibited in every case. Not only does the potential for cross-subsidy help ensure a sustainable scheme with lower levy thresholds, but it helps to ensure that the compensation supports consumer confidence in the financial services sector as a whole, by limiting the risk that compensation claims cannot be met. If the scheme has insufficient funds to pay out claims to policyholders of a failed insurer, bank customers are unlikely to have confidence that the scheme will be able to pay out if their bank fails.
	As I have already stated, the decision on how the FSCS is funded is best made by the regulators and implemented through their rules. In particular, it is the regulators who understand what is appropriate and affordable by different classes of firms and so are best placed to determine when, or indeed if, cross-subsidisation is appropriate. I equally accept, however, that there is a need for proportionality in the different classes of firms that are expected to contribute. I am well aware, for example, that in the past the building society sector has felt that it has had to pay a disproportionate burden.
	However, as I have mentioned, the FSA is consulting on how the FSCS will be funded, although in broad terms, as the noble Lord, Lord Teverson, said, both the PRA and the FCA will have rule-making responsibility for the scheme. The PRA will make rules for deposit takers and insurance providers and the FCA will make compensation rules for all other types of financial activity covered by the scheme.
	The best way to deal with the specific issue raised by my noble friend is via the FSA's consultation on the draft scheme, which I mentioned earlier. It is ongoing-it has several weeks left to go-and it is the best way now of ensuring that the scheme we end up with is the best possible scheme for all the different classes of firms which will be covered by it. On that basis, I ask my noble friend to withdraw his amendment.

Lord Teverson: My Lords, I thank the Minister for his reply. Obviously I am somewhat disappointed. Clearly the consultation is an area in which the sector and I will participate but there is a real issue around justice and equity in this sector and how the scheme will work. I shall perhaps take the opportunity to speak to him further between now and Report, but, in the mean time, I beg leave to withdraw the amendment.
	Amendment 187C withdrawn.
	Amendment 187CA not moved.
	Amendment 187D
	 Moved by Lord Sassoon
	187D: Schedule 10, page 242, line 11, at end insert-
	"In section 221 (powers of court), in subsection (2), after "director or" insert "other".
	In section 222 (statutory immunity), in subsection (1), omit "board member,"."
	Amendment 187D agreed.
	Schedule 10, as amended, agreed.
	Clause 36 agreed.
	House resumed.

EU: European Justice and Home Affairs Powers
	 — 
	Statement

Lord McNally: My Lords, with the leave of the House, I shall now repeat a Statement made in the other place by my right honourable friend the Home Secretary. The Statement is as follows.
	"With permission, Mr Speaker, I would like to make a Statement on European Justice and Home Affairs powers.
	Under the terms of the Lisbon treaty, the Government are required to decide by 2014 whether we opt out of, or remain bound by, all those EU police and criminal justice measures adopted prior to the entry into force of the treaty.
	The Government are required under the treaty to reach a final decision by 31 May 2014, with that decision taking effect on 1 December. While this may seem a long way off, as with many EU matters the process of decision-making is a complicated one. We wish to ensure that before that point we give this House and the other place sufficient time to consider this important matter.
	In total, there are more than 130 measures within the scope of the decision to be considered at this stage. A full list of the measures concerned was provided to the House on 21 December last year, and a further update was given on 18 September this year.
	The Government are clear that we do not need to remain bound by all the pre-Lisbon measures. Operational experience shows that some of the pre-Lisbon measures are useful, some are less so and some are now, in fact, entirely defunct. But under the terms of the treaty, the UK cannot pick and choose the measures from which to opt out. We can only opt out en masse and then seek to rejoin the individual measures.
	So I can announce today that the Government's current thinking is that we will opt out of all pre-Lisbon police and criminal justice measures and then negotiate with the Commission and other member states to opt back into those individual measures which it is in our national interest to rejoin. However, discussions are ongoing within government and therefore no formal notification will be given to the Council until we have reached agreement on the measures that we wish to opt back into.
	This Government, more than any other before them, have done their utmost to ensure that Parliament has the time to properly scrutinise our decisions relating to the European Union and that its views are taken into account. I can assure the House that the 2014 decision will be no exception. As the Minister for Europe has already told the House, the Government are committed to a vote on this matter in both this House and the other place. We are also committed to consulting the European Affairs, Home Affairs and Justice Select Committees, as well as the European Scrutiny Committee and the European Union Committee, as to the arrangements for this vote.
	I fully expect that these committees will want to undertake their own work on this important decision. The Government will take account of the committees' overall views of the package that the UK should seek to apply to rejoin. So that the Government can do that, I invite the committees to begin work, including gathering evidence, shortly and to provide their recommendations to the Government as soon as possible.
	The Government will then aim to bring forward a vote in both Houses of Parliament. The timeframe for this vote will depend on the progress in our discussions with the Commission and Council. An update will be provided to Parliament early in the new year on when we can expect the vote to take place.
	I hope that today I have conveyed to the House the Government's full commitment not only to holding a vote in this House and the other place on the 2014 decision but on the importance we will be according to Parliament in the process leading up that vote. I am sure that all parties will want to work together to ensure that the final decision is in the UK's national interests.
	It is in the national interest that the Government have taken this decision, and I commend this Statement to the House".
	My Lords, that concludes the Statement.

Baroness Smith of Basildon: My Lords, when I read reports in the press and heard about this Statement this morning, I had hoped that we would get some clarity from the Statement about exactly what the Government's plans involve. Having listened to the Home Secretary and the noble Lord, I am not much wiser. Rarely can a Statement have been so devoid of detail.
	I have expressed my concerns before that Home Office Bills, specifically in relation to crime and courts, have come before this House before the detail has been worked out. The community sentencing clauses, for example, used a procedure of recommitting a Bill that I have never seen before in 15 years in both Houses.
	I suspect that I know why. It is not often that we get Conservative Party policy from the Dispatch Box, particularly from a Lib Dem Minister, and that probably explains why there is a lack of clarity. If the press reports are to be believed, Liberal Democrat sources have played down the significance of today's Statement. If I have understood the report correctly, the Home Secretary and the Minister today have "limited authority" in what they can say, because government policy has not yet been agreed. The Minister cannot go as far as the Prime Minister-I doubt that he would want to-when he said that the Government would opt out of all police and criminal justice measures.
	I cannot recall any other Statement of such significance where a Secretary of State has announced that the Statement represents the Government's "current thinking" and has added that "discussions are ongoing within government". We all know what that means: it is the pro/anti EU tension at the heart of this Government that makes this announcement confused and shambolic and seem like yet another example of policy being drafted on the back of an envelope.
	Several questions about the detail need to be answered. I apologise to the noble Lord for referring to detail, but the House deserves to have some. If the European arrest warrant had not been in place, what action would have been available to UK police in co-operating with their French counterparts to ensure that the French police were able to arrest Jeremy Forrest and ensure that he and Megan Stammers were returned to the UK in the same timescale? No one is suggesting that the European arrest warrant is perfect, but the independent Scott Baker report commissioned by the current Home Secretary strongly recommended keeping it. Yes, it could be improved and updated, and that very process is taking place now; it is being reformed. As a further example of this Statement being premature, the Government do not even know at this stage what they would be opting out of.
	The European arrest warrant is responsible for nearly 600 criminals being returned to the UK to face trial. It has allowed 4,000 citizens from other European countries to be sent back to their home country or another European country to face justice. In light of some of the Government's briefing on this issue, your Lordships' House might like to be aware that 94% of those sent back to other European countries to face trial under the European arrest warrant are foreign citizens.
	The Home Secretary has said that the Government may want to opt out-because no one is sure yet-and then may consider opting back in again. There is a process for opting back in, but can the Minister say what happens in the mean time-in that gap between opting out and trying to opt back in? What processes will be in place, and what happens if the opt back in is refused? My understanding is that Denmark has had around 50% of its applications to opt back in refused.
	If the UK opts out of policing and criminal justice measures, what process do the Government envisage putting in place to deal with some hugely significant issues? These include: counterterrorism; the sharing of criminal records, including those of sex offenders; conventions to protect member states' financial interests in the event of major international economic crime; minimum standards of collection of customs and police information to tackle cross-border crime; co-operation on the identification of laundered money; co-operation between member states in tracing and freezing criminal assets; and the setting up of Europol. That list is not exhaustive.
	It would have been far more satisfactory if the Minister had been able to give us some clarity today, if he had been able to say which of those areas he would want the Government to opt back in to, and if he had been able to say why the Government think the position is so unsatisfactory that they are considering opting out of the entire police and criminal justice powers. Which of these are so offensive that the Government are prepared to put at risk European co-operation on some of the most serious and abhorrent crimes that damage British citizens? The Statement gives no reasons for the Government taking this view. There is no justification for this view, and there is no information on which provisions the Government think are valuable and would want to opt back into.
	We have a process from the Government but we do not have a policy. The reason is that this is still only the Government's current thinking, as the Minister stated, and discussions are still ongoing within the Government. Will anything ever change? It seems an absolute shambles. On issues as serious as this, this House and the public deserve better. This sounds too much like a political gimmick drummed up on the back of an envelope.

Lord McNally: I thank the noble Baroness for her response. I suppose I should also thank the Opposition for leaving this measure in the negotiations that they carried out on the Lisbon treaty.
	First, on clarity, I do not think there could be a better and clearer declaration of pre-legislative scrutiny-something that I think the House wholly approves of. If I had come here today with a definitive list of measures to be opted into or out of, the House would quite rightly have said, "How can you pre-empt the decision in this way?". I will borrow the noble Baroness's phrase: we have put in place a process, not a policy. The process will allow this House, the other place and their committees to look at this matter in a proper, considered way, and to bring forward recommendations that will in turn form the Government's final decision. That does not sound to me anything like policy on the back of an envelope. It seems a very measured way of looking at matters, and one reason why we are starting early is to make as much progress as possible on these matters so that there is not the gap to which the noble Baroness referred in relation to the opt-out and implementation.
	The European arrest warrant is a perfectly good example. No final decision has been taken. The European arrest warrant has had some successes, but there have also been problems, including the disproportionate use of the EAW for trivial offences. As with all the other measures, the point is that it will now be open to scrutiny and consideration by those who have experience of how these things have worked, so that we can make that final decision on these measures in the national interest. As I say, this is one of the clearer Statements I have ever come across about how a Government intend to develop policy, and one that sets forth for both Houses a process that will give them maximum influence on policy.

Lord Lloyd of Berwick: My Lords, I start by welcoming the fact that the Government are consulting so soon on whether or not to opt out. That seems an entirely good thing. I also welcome the fact that they are consulting the various committees listed in the Statement.
	I suggest that those committees, and indeed the Government, could do no better than to start by reading-and, if I may say so, inwardly digesting-a working paper very recently produced by a group of very distinguished academics under the leadership of Professor John Spencer of Cambridge University, entitled Opting Out of EU Criminal Law: What is Actually Involved?. It was the result of much work over the summer and was published only last month. The report starts by disposing of various myths that have surrounded this subject since first it raised its head: in particular, the myth that one can pick and choose what one is going to opt out of. Happily, the Government accept that we simply cannot do that.
	However, the Government believe that we can opt out of the whole and then try to negotiate our way back in where it suits us-the so-called Danish solution. But what if we do not succeed? It is quite wrong to suppose that all 130 pre-Lisbon police and criminal justice measures are bad. On the contrary, they are not. We will in any event be bound by all post-Lisbon police and criminal justice measures-that is another myth that is widely believed. So it will be partly one and partly the other. If we opt out, we may in the end get the worst of all possible worlds in deference to the pressure that I think we all understand.
	The noble Baroness, Lady Smith, has already referred to the "current thinking" of the Government on this matter being to opt out. I implore the Government to keep their current thinking on this matter under review.

Lord McNally: My Lords, the whole point of the exercise is that the Government can keep their thinking under review and can take on board the kind of evidence and study that the noble and learned Lord referred to. He puts his finger on it entirely. We were faced with the position, as the Lisbon treaty stands, that we could not pick and choose what we opt out of; we can simply opt out and then negotiate on the basis of opting back in. Is that a high-risk strategy? We will take the evidence of the debate that unfolds in both Houses, from the committees of both Houses and from academic, judicial and other advice that we receive. However, I do not think that the Government can be accused of taking an irrational way forward. It seems a very measured way forward that gives us time-the noble and learned Lord welcomed how soon this decision had been made. It is because we are taking this early decision that we are going to be able to make the kind of measured decision in the national interest that I think both Houses will welcome in the end.

Lord Reid of Cardowan: I thank the Minister for repeating the Statement, although I confess that I am not much better informed than I was before it. Will he clarify three things to take us a little bit further in detail, something with which the Statement was not replete? First, during this period when the Government are "minded" to do something-one of those useful words that civil servants taught me-will the present provisions continue to operate until such time as the Government become "minded" to stop things? Secondly, given that law and order is both now an international and transnational phenomenon and among the highest priorities of people in this country, can the Minister tell us whether any impact assessment has been done of the effect of abandoning these regulations on law and order in this country during the interim, between when he becomes minded to do something and the negotiations finish? In particular, has any consultation taken place with the police and the intelligence communities about it? Thirdly, if either has taken place, can he give us a little more detail on the anticipated effects, were such regulations to be abandoned, in particular or wholesale?

Lord McNally: I thank the noble Lord for those questions. I am sure we are going to get this continually. I make the point that the whole merit of this Statement is that it does not present either House with a fait accompli. On the contrary, it offers the House involvement in making these important decisions, which I think would be welcome to the House concerned. That is why this word "minded" is used, because the Government are awaiting advice and having discussions. I cannot imagine that decisions of this importance and magnitude would be taken without the input of those who have responsibility for policing and security matters. They will certainly be involved in giving evidence and advice. However, I am not sure that the process would be helped if Ministers or anybody else dribbled this advice out a little bit at a time. We will get a big picture and all the committees of both Houses will have the opportunity to take advice from a wide range of bodies. We will see that advice emerging when they have had the opportunity to give it.

Baroness Hamwee: My Lords-

Lord Hannay of Chiswick: My Lords-

Lord Wood of Anfield: My Lords-

Lord Ahmad of Wimbledon: My Lords, I know many noble Lords wish to speak on this. Perhaps we can take the noble Baroness, Lady Hamwee, and then come across proportionately to the other Benches.

Baroness Hamwee: My Lords, does my noble friend agree that it is fundamental to the EU that there is freedom of movement and, that being so, that we need the tools to deal with negative consequences, when there are negative consequences? If that is so, will he give the House an assurance that the Government's decisions will be based on evidence and informed opinion-of which there is quite a lot-because the Statement is not neutral? Does my noble friend further agree that playing hard to get is not always the best way to progress a relationship?

Lord McNally: I shall not go there. Instead, I assure my noble friend that the invitation before the House, and indeed the country, is to let us make these very important decisions on the basis of evidence and informed opinion. I am very confident that if we approach this on the basis of evidence and informed opinion we will make the right decisions for the country.

Lord Baker of Dorking: My Lords, I was the Home Secretary at the time of the Maastricht arrangements. Let me remind your Lordships of what Maastricht did. It said that matters of criminal justice and police powers should remain matters for independent states within Europe. In fact, John Major described it on coming back from Maastricht as one of the great independent pillars of that settlement. That independence has been eroded over the years by the natural effluxion of powers to the centre, which is remorseless in the case of Europe. Therefore, I very much welcome the statement that we will resile from undertakings and then pick and choose which we think are advantageous to our country. This seems to be an excellent exercise in subsidiarity and may well be the shape of things to come.

Lord McNally: I thank the noble Lord, Lord Baker, for that intervention. I think he would agree that things have moved on from Maastricht, not least in a matter that I think the noble Lord, Lord Reid, referred to-that many of the challenges that we face in these areas are transnational and international. That is why, while looking at the issues with an eye to subsidiarity and the responsibilities of the nation states, we also have to look at them from the realities of the much more international, transnational and global operation of many of the criminal forces that we are trying to counteract. That is why I rely on proper evidence-based examination of the decisions that we are taking forward.

Lord Hannay of Chiswick: My Lords, does the Minister recognise that the thanks for the Statement today would be a great deal more sincere if it was not such a sham? It is a sham because the Prime Minister has stated categorically that he will opt out-no ifs and buts and nothing about reinserting those measures we choose. He has ridden roughshod over the undertakings that were given in this House by the noble Lord, Lord Henley, and in the other place by the Minister for Europe that before the Government came to any conclusions at all on this matter they would consult very fully. The warm words he said about consultation today are, frankly, not very comforting. I can only repeat the words of the chairman of the EU Select Committee of this House, the noble Lord, Lord Boswell, when he wrote to the Home Secretary after the Prime Minister's statement expressing his dismay. Does the noble Lord agree that it would be completely unthinkable to put the matter for decision to the two Houses until we are absolutely clear what the whole of the reinsertion or reapplication package is? We will not be able to judge what the consequences of the Government's actions are unless we know not only that they are going to opt but what they are going to opt back into.

Lord McNally: The noble Lord is being unduly cynical about the approach being taken-or let us say pessimistic. When the Home Secretary of the day makes a considered Statement of government policy and I repeat it from this Dispatch Box in this House, we are asking noble Lords and Members in the other place to believe that the Government have not made a final decision on this matter. They have adopted a process which will enable us properly to look at the issues before us. I take note of the noble Lord's point that the opt-out/opt-in decision is part of a single picture, and I shall certainly draw my colleagues' attention to the fact that somebody with his long experience of negotiations of this kind is giving what I consider to be wise advice.

Lord Wood of Anfield: My Lords-

Lord Bowness: My Lords-

Lord Ahmad of Wimbledon: My Lords, if we take the Labour Benches and then we will move back to the Cross Benches and the government Benches.

Lord Wood of Anfield: My Lords, in the event that we opt out and then persuade 26 other EU countries of the importance of us opting back in on an individual item, would the act of opting back in trigger a referendum under the Government's own legislation?

Lord McNally: We do not believe that that would trigger a referendum.

Baroness Williams of Crosby: My Lords, can my noble friend assure the House that, in the event that the United Kingdom Government decide to pursue certain elements to opt back into, we would know in advance that the other 26 countries would be willing to negotiate on that basis? It is crucial, if we are going to opt back in, that we have reason to believe that we will be heard and that those issues will be negotiated. Does my noble friend agree that it was under the European arrest warrant that, among other people, one of those who perpetrated the 7 July atrocities was arrested? Will he also assure and remind the House that Europol was at a very advanced position in breaking the dangerous international paedophile ring that until last year operated throughout the whole of Europe?

Lord McNally: My Lords, the European arrest warrant and other measures of European co-operation stand very clearly as benefits to us-my noble friend cited two examples. That will be part of the debate that is unfolding. One of the reasons for our wanting to make the Statement today, which, as I have said, it would have been possible to delay by another year, was to start engaging in exactly the kind of discussions that my noble friend referred to. On both a bilateral basis and with the Council and the Commission, we will explore the very areas that will give us and both Houses a clear indication of prospects for success.

Lord Williamson of Horton: My Lords, I do not think that this is a high-risk strategy as has been suggested by others. We negotiated in the Lisbon treaty the right, if we so decided before the end of May 2014, to opt out en masse of the EU police and criminal justice measures adopted before the entry into force of the treaty. As for the treaty, it is a case of all in or all out. That is what the treaty says. It is the consequences that we are talking about now. The Government have, as I understand it, now decided to opt out. Of course, it is possible to opt in for other individual measures, but does not the Minister agree that one problem there is that the practical consequences of some of these measures are still rather difficult to foresee, because we are talking about a moving target? That is a serious point, but I welcome the Government's intention to scrutinise the possibilities very carefully, to give Parliament the time to carry out the scrutiny, particularly in this House, and to require a vote in both Houses of Parliament. That is the right way to go and the British public deserve no less.

Lord McNally: My Lords, I welcome from such an experienced source the opinion that this is not a high-risk strategy. As I have acknowledged, there is a danger in taking the opt-out route, but the treaty left us no option other than to stay in en bloc or to adopt this strategy of opting out and then negotiating back in. By adopting a good timescale and involving committees of both Houses, we will have the opportunity to take both external advice and the political opinion of both Houses to keep track of the individual measures and look at the exactly the kind of consequences and movements that the noble Lord referred to. It is certainly not a political ploy, as has been suggested; rather, it is a political opportunity. It may be seen as a political opportunity for Eurosceptics. I urge those who have a belief in the European process and the benefits of European co-operation to use this exercise to argue their case strongly in both Houses and with the intention of a getting a final decision which is truly in the national interest.

Scotland: Referendum
	 — 
	Statement

Lord Strathclyde: My Lords, with permission, I shall now repeat a Statement made by the Parliamentary Under-Secretary of State for Scotland in the House of Commons a few minutes ago. The Statement is as follows:
	"You will appreciate that my right honourable friend the Secretary of State for Scotland is unable to deliver the Statement to the House today, as he has attended the meeting between the Prime Minister and the First Minister in Edinburgh to secure agreement on the independence referendum for Scotland.
	In January of this year, my right honourable friend the Secretary of State for Scotland delivered a Statement to this House about the referendum. At that time, we acknowledged the Scottish National Party's victory in the May 2011 Scottish parliamentary election and its manifesto pledge to hold an independence referendum. The Government also made clear their view that the Scottish Parliament did not have the legal power to legislate for an independence referendum. My right honourable friend the Secretary of State made an offer then that the UK Government would bring forward an order to give the Scottish Parliament that legal power. Since January, the UK and Scottish Governments have held consultations. There has been considerable public debate and numerous discussions between Ministers. Many of those discussions took place between me and Bruce Crawford MSP, Minister for Parliamentary Business and Government Strategy in the Scottish Government, and I would like to acknowledge his contribution.
	Following 10 months of deliberation and four weeks of direct negotiations between the Scottish Government's Deputy First Minister and my right honourable friend the Secretary of State, I am pleased to report to the House that, today in Edinburgh, the Prime Minister and the First Minister have made an agreement that will allow a legal, fair and decisive referendum to take place. This is a significant agreement. The two Governments have agreed that there should be a referendum. We have agreed that the referendum will consist of a single question. It will offer a choice between independence and remaining within the United Kingdom. We have agreed that it must be held before the end of 2014. The referendum will be based on the normal legal framework for UK referendums, with oversight from the Electoral Commission. This includes the key issues of how the referendum question will be determined and how the rules governing spending and campaigning will be established.
	Following today's agreement, the Government will bring forward an Order in Council under Section 30 of the Scotland Act. I have today placed a copy of the agreement and the draft order in the Library of the House. The agreement and draft order are also available to Members from the Printed Paper Office. This order will be laid before Parliament on 22 October and will be debated by both Houses of this Parliament and by the Scottish Parliament. All Members of this House will have the opportunity to consider and vote on the order. If both Parliaments approve the order, and after it is approved by Her Majesty in Council, the Scottish Parliament will have the legal competence to legislate for the referendum. We hope that the order will be passed by February 2013; once that has happened, the Scottish Government will introduce a referendum Bill setting out the wording of the question, the date of the referendum and the rules for the campaign for the Scottish Parliament to consider.
	As part of today's agreement, the two Governments have agreed that the rules for the referendum will be based on the rules set out in the Political Parties, Elections and Referendums Act 2000. Those rules were used successfully in the two referendums that took place last year. The two Governments have also confirmed that the Electoral Commission will review the proposed referendum question and that its report will be laid before the Scottish Parliament. This is the same process as applies to other UK referendums. Interested parties will be able to submit their views on the question to the Electoral Commission in the usual way. The Scottish Government will then respond to the Electoral Commission's report.
	Both Governments are agreed on the need for maximum transparency in this process and for a level playing field. Therefore, as part of today's agreement, the Scottish Government will consult the two campaign organisations that have been established for their views before proposing spending limits for the referendum campaign to the Scottish Parliament. The Electoral Commission will also provide the Scottish Government with advice on the appropriate spending limits for the two campaigns in the referendum, as has happened in previous referendums, such as the 2011 referendum in Wales on further powers for the Welsh Assembly. In that referendum, the Electoral Commission recommended that the spending limit for designated campaign organisations should be set by reference to the expenditure limits applying to elections to the relevant legislature. In its response to both Governments' consultation documents, the Electoral Commission provided its view that this model remains appropriate for the Scottish independence referendum.
	Both Governments agree that all those who were entitled to vote in the Scottish Parliament elections in May 2011 should be able to vote in the referendum. As for all other referendums held in any part of the UK, it will be the legislation that establishes the referendum that will set the franchise. It will therefore be for the Scottish Parliament to define the franchise in the referendum Bill, as it would do for any other referendum or, indeed, election on matters within its devolved competence.
	Although both Governments are agreed that the basis of that franchise will be the franchise for the Scottish Parliament elections, the Scottish Government have previously set out their proposals for extending the franchise to allow 16 and 17 year-olds to vote. It will now be for them to make the case for that change and to deal with the technical issues that may arise. There are, of course, a range of opinions in this House about changes to the voting age. However, having agreed the principle that the Scottish Parliament should have the legal power to legislate for the referendum-that it should be a referendum "made in Scotland"-the Government accept that it should be for the Scottish Parliament to determine the franchise. I fully expect that the Scottish Government's proposals will be robustly debated in that Parliament. Any decisions taken by the Scottish Parliament for the referendum will not affect the voting age for parliamentary and local government elections anywhere in the United Kingdom.
	Today's agreement is important, as will be the consideration of the agreement and the order by this House, but I would also like us to reflect on what will come after. Now that the Governments have agreed the process for the referendum, it is vital that we get on with the real debate about the most important political decision that people in Scotland will ever take. The UK Government have already started to prepare the analysis and evidence that people in Scotland are calling for. Over the next year, this Government will publish thorough, evidence-based information that will set out the key issues in the independence debate. That analysis will be comprehensive, robust and open to external scrutiny. I fully expect it to show that Scotland is better off within the United Kingdom and that the rest of the United Kingdom is better with Scotland as part of it.
	This Government believe passionately in the United Kingdom. We will work tirelessly over the next two years to show the Scottish people-and everyone else in this country-that together we are stronger, that together we can overcome the challenges confronting us and that together we can build a better future for Scotland as an integral part of the United Kingdom. The debates ahead will no doubt be long; they will no doubt be challenging and, at times, heated. But I fervently believe that, with the support of colleagues across this House, across Scotland and across the whole of the United Kingdom, in autumn 2014 fellow Scots will join me in choosing to stay part of the United Kingdom. We are indeed better together".
	My Lords, that concludes the Statement.

Lord McAvoy: My Lords, I thank the noble Lord for repeating the Statement made in the House of Commons. As my honourable friend Margaret Curran has stated in that place, this is indeed an historic day for Scotland. We-the Labour Party-welcome the fact that an agreement has been reached and we can now start to get beyond the process. Nevertheless, there are a number of matters on which this House would like more information. These relate particularly to the franchise, the campaign finance and the wording of the question.
	If votes at 16 and 17 are to be introduced, legislation should be introduced across the UK for every election so that proper scrutiny can be given to such a process, not just a one-off referendum. There are awful practical difficulties in this. Scottish Labour has estimated that as many as 54,000 16 year-olds could miss out on being able to vote, so we need clarification on how these arrangements will be made to ensure that those qualified to vote actually get the chance to vote. Has any advice been sought from the Electoral Commission on the fairness and practicality of allowing this change to be made?
	On campaign finance, the Scottish Government cannot be the referee and the player. The deal is clear: the Electoral Commission will act as an independent overseer of the process, including finance and the wording of the question. No Government have overruled the Electoral Commission; the First Minister should not start. We need independent, external oversight of campaign finance from the Electoral Commission to ensure fair play. It should also be borne in mind that the Scottish Government are retaining the £1 million paid-for army of spin doctors throughout the campaign. What guarantees have the UK Government received from the Scottish Government that Electoral Commission limits and the fair rules of the UK Political Parties, Elections and Referendums Act will be followed?
	It is right and proper that Scotland's trade unions and businesses should be able to have a say on an issue of this importance to our nation's future. How does the agreement ensure that they will be given a fair chance to have their say and support the campaigns? There is another question on which many of us have been approached. Will Scots living in the rest of the UK, who will not have a vote, be able to support the campaign?
	On the referendum question, we want a clear and unambiguous question that provides a fair choice for the Scottish people. Any questions should be thoroughly tested by the Electoral Commission. The agreement that has been reached by the Scottish and UK Governments allows for the Scottish Parliament to set the question in consultation with the Electoral Commission. As we all know, how a question is put can play a great part in how people respond to it, so we are looking for the UK Government, in these discussions with the Scottish Government, to seek and get these guarantees. There is a lot of discussion about detail to be entered into from the UK Government's point of view.
	Having experience in Scottish politics-as has the noble Lord, who at the very least has been an observer-I believe that we need to ensure that what is actually said on behalf of the First Minister or by the First Minister is thoroughly scrutinised and checked to make sure that what he says is what he actually means. This is clearly the most important issue facing the Scottish people. We in the Labour Party believe that our place in Scotland is within the United Kingdom, as the Minister has said, both for Scotland's sake and for the United Kingdom's sake. We in the Labour Party hope that the Government are competent enough to handle these negotiations and we will play our part in trying to convince the Scottish people that their future and the UK's future are better with Scotland as part of the United Kingdom.

Lord Strathclyde: My Lords, I very much welcome what the noble Lord said in his closing remarks. He is right to say that all of us, across the political divide, should work together to get a result whereby Scotland feels part of the United Kingdom and wants to continue in what has been one of the most successful, if not the most successful, partnership that the world has ever seen.
	The noble Lord asked a variety of detailed questions and I shall try to answer them. He started by saying that this was an historic day. It is; it is the most extraordinarily historic day and one that I never wished to see. I, for one, never thought that the Scottish nationalists would be able to achieve the majority that they did under the electoral system used for the Scottish Parliament, but in May 2011 the SNP won an outright majority; it won 69 of the 129 seats and part of its commitment was that there should be a referendum, even though it knew that it did not have the legislative ability to achieve that.
	The noble Lord asked about the franchise. I expect that we will come back to that in the course of this debate. The first and most important thing to say is that the franchise is up to the Scottish Parliament to decide; it is not up to this House to decide.

Lord Cormack: No!

Lord Forsyth of Drumlean: No!

Lord Strathclyde: My Lords, I hear some "noes" around the place, but that happens to be the position. Noble Lords may not agree with it, but that is the purpose of the Section 30 order: to allow the Scottish Parliament to decide the franchise. The Scottish Government have said that they intend to try to include 16 and 17 year-olds, or certain 16 and 17 year-olds, in the franchise. We believe that there are some difficulties in doing so. I cannot speak for any other political parties, but Conservatives in the Scottish Parliament will campaign and vote against that provision. I, for one, as a parent of teenagers, would rather that my children were learning a bit more maths and physics in school than working on whether they should be voting in the referendum.
	Of course, advice from the Electoral Commission is not statutorily binding on the Scottish Government or the Scottish Parliament, but when it comes to the question I think that there would be a political price to pay not to take the advice of the Electoral Commission, which has been specifically set up to offer such advice. It has given advice to the Scottish Government in the consultation process on the franchise and will no doubt do so on the question. The same goes for the financing of the referendum and the referendum campaigns.
	As for Scots living in the rest of United Kingdom, I see no reason why they should not be part of the debate on policy and funding, but that will ultimately be a matter for the Scottish Parliament.
	The noble Lord's penultimate remark was about scrutiny of the First Minister. That will depend on the quality of the scrutiny carried out in the Scottish Parliament. I hope that a great deal of scrutiny of these measures is given in the Scottish Parliament.

Lord Forsyth of Drumlean: My Lords, has my noble friend had the opportunity to look at the Scottish Government's website this afternoon? It states quite clearly that after the Section 30 order has been agreed, the Scottish Government will bring forward legislation that will set out the date, the franchise, the wording of the question, the rules on campaign finance and other rules governing the conduct of the campaign. It states:
	"A final decision on these aspects will be taken by the Scottish Parliament, taking full account of the responses to the Scottish Government's referendum consultation".
	If a final decision has not been taken, and will be taken by the Scottish Parliament, what exactly have my right honourable friends the Secretary of State for Scotland and the Prime Minister been negotiating about? If we are being asked to buy a pig in a poke and to pass a Section 30 order before we know the contents of the Bill, is that not marginalising the House of Commons? Would it not be better, at the very least, given that we cannot amend a Section 30 order, that we do not pass that order until we have seen the draft Bill that is to be put before the Scottish Parliament?

Lord Strathclyde: My Lords, I always like it when my noble friend agrees with me and when I am in agreement with him. Sadly, that is not the case on this occasion. The key question is: what does this agreement today mean for the people of Scotland? It means, first of all, that there will be a single question on the ballot paper-no more than that. We understand that many in the Scottish Government wanted a two-question referendum. Secondly, there is a time limit. We now have certainty that the referendum must take place before the end of 2014. That is a tremendous advantage to clear the air, to remove the poison at the heart of Scottish politics and to give real certainty to politics throughout the United Kingdom.
	I cannot disagree with the list that my noble friend read out. These will be matters for the Scottish Parliament. We are today announcing a Section 30 order that will devolve to the Scottish Parliament the ability to run the referendum and, naturally, it will have to answer those questions.

Lord O'Neill of Clackmannan: Will the Leader of the House confirm that a Section 30 order is required to be passed by both Houses of this Parliament? That may be a tall order to achieve. From what he said today, and the manner in which he answered the points made by the noble Lord, Lord Forsyth, one gets the impression that the Scottish Tory Party has learnt nothing and forgotten nothing.

Lord Strathclyde: My Lords, on the first question, it will be up to both Houses of the Parliament to agree the Section 30 order. I did not understand the second question at all. To coin a phrase, we are all in this together. Across this Dispatch Box-I do not know where the noble Lord stands on these great matters; I thought that he was rather in favour of the United Kingdom-we will be working together to ensure the desired result in the referendum.

Lord Steel of Aikwood: My Lords, we have already had a year and a half of debate about Scottish independence and I must admit that the thought that we are to have another two years of debate fills me with gloom. We have the consolation of knowing that, through that period, public opinion has moved in favour of retaining our position in the United Kingdom and we must hope that that continues.
	I was encouraged by what the noble Lord said a moment ago about the Electoral Commission, because the Statement itself was weak on that question. If the Electoral Commission takes the view that any question beginning with the words, "Do you agree that", is a leading question, surely it will not be possible for the Scottish Parliament to ignore that. Would it not be better than having a yes/no question simply to have two conflicting statements against which the electorate put a cross: either, "I am in favour of Scottish independence", or, "I am in favour of retaining the United Kingdom"?

Lord Strathclyde: My Lords, under this legislation, the referendum must take place by the end of 2014-I think that essentially it is understood that it should be in the autumn of 2014-so there is plenty of time to go. Some people will find that hard to put up with; some people will find it reasonable that we should have plenty of time to discuss these important issues. As for the question, the Electoral Commission is not binding on the Scottish Parliament. The Scottish Parliament must ultimately approve the question. The point that I was trying to make is that if there was a leading question with which the Electoral Commission disagreed-its report will be made available to the Scottish Parliament-I suspect that there would be a political price to pay for that.

Lord McConnell of Glenscorrodale: I welcomed the intervention of the Prime Minister earlier this year because I felt that many outstanding questions had to be addressed. One was the proposed date of the referendum. On that, to secure this agreement, the Government have capitulated. The two years that is now proposed for debate on this referendum could do untold damage, and not only to the Scottish economy-it could affect the British recovery as well. That has been a mistake. On the other side, it is positive that we have now secured agreement that there will be a legally binding referendum. The Scottish Government did not want a legally binding referendum; they wanted a softer option of an advisory referendum and we have stopped that. That is to be welcomed.
	On the rules of that referendum, there are serious questions to be answered. Frankly, I am astonished that we have in front of us today the Section 30 order that could be passed by this House and the other House but not the draft referendum Bill that that Section 30 order will enable. In the months since the Prime Minister's statement in January, I always expected that there would be the Section 30 order at the end of this process and that at the same time the draft referendum Bill on which that Section 30 order was based and on which the agreement had been reached would be published. I am disappointed that that is not in front of us today and I urge the Government to think seriously about pressing the Scottish Government to publish that referendum Bill in advance of the deliberations of this House rather than afterwards.

Lord Strathclyde: My Lords, the referendum process is now legally watertight. The draft Section 30 order will provide the Scottish Parliament with the confidence to legislate for an independence referendum if it is passed by both Houses of Parliament.
	As to the question of the Bill, there is no Bill before us. We have not seen a draft Bill. We wait to see what the Scottish Government publish. They have not yet published the answers to their consultation process. We would hope to see that soon. The noble Lord started by saying that two years is a long time to wait. We cannot force the Scottish Parliament to publish their draft Bill. We have had this negotiation, we have a time limit and I think that the months will pass by very quickly.

Lord Martin of Springburn: My Lords, I put on the record that I welcome the fact that there is one question and one question alone. That is right and fitting and it saves confusion. However, in the Statement a lot has been made of faith being put in the Electoral Commission. It should be borne in mind that only five years ago, in 2007, at the parliamentary elections the Electoral Commission had to step aside and the taxpayers of this country had to invite a Canadian expert, Mr Ron Gould, to investigate why 85,000 electors had their ballot paper rejected. That is the equivalent of one and a half constituencies in the Scottish Parliament. Because the Electoral Commission had played a part in preparing the electronic machines and making up the ballot paper, it could not get involved. That was a big mistake. I ask the Minister to pay close attention to the internal workings of the Electoral Commission to make sure that no one in this election has their ballot paper rejected.

Lord Strathclyde: My Lords, I join with the noble Lord in saying that we have come to the right conclusion that there should be only one question. The most important thing in this debate is that we have absolute clarity of result and the only way of doing that is by having a single question with a yes/no answer.
	I very much welcome what the noble Lord has said about the Electoral Commission. It is true, as he knows very well, that there was a problem in 2007 and I am sure that the Electoral Commission has learnt many lessons as a result of it. However, his main point was that Ministers should pay close attention to the workings of the Electoral Commission to make sure that this does not happen in this all-important referendum, and on that I completely agree with him.

Lord Cormack: My Lords, unless and until any constituent country in the United Kingdom becomes independent, it should surely be bound by the rules of the franchise which apply in the United Kingdom. Does my noble friend not accept that it is wrong to alter the franchise by the back door? That will be the consequence of our kow-towing-that is what it is-to the demands of the First Minister of Scotland. Can we please have the opportunity at the very least to see this draft Bill before we approve the order? If we do not, some of us may not feel inclined to approve it.

Lord Strathclyde: My Lords, I cannot give my noble friend the comfort that he wants. There is nothing that we can do to oblige the Scottish Parliament to publish a draft Bill, and this very much depends on the process of the passage of that Bill in the Scottish Parliament.
	On the second point on the franchise, such voting already takes place in Scotland. The Scottish Parliament decided that 16 and 17 year-olds who turned 18 during the lifetime of the register would be able to vote in the health board elections. It may be a small example but it is an example of where devolution on the franchise has already taken place. I reiterate that I am not in favour of a change in the franchise but it will be a matter for the Scottish Parliament to decide.

Lord Reid of Cardowan: My Lords, everyone in this House accepts that in these discussions compromise is necessary. But that compromise has to be informed by the need and the criteria for clarity, fairness and legitimacy. Let us accept that having one question certainly meets those criteria. However, there are two areas which fail to meet those criteria.
	First, the idea of having the Scottish Parliament and the SNP effectively decide the question is not liable to assist in either legitimacy in the long run or fairness in the short term. There may be inadequacies, as has been pointed out, about the Electoral Commission, but I am sure that if anyone in Scotland was asked who was likely to be more objective in choosing a question between the SNP and the Electoral Commission, I would not bet against the Electoral Commission winning that judgment.
	Secondly, as my noble friend Lord McConnell pointed out, to ask people to vote for a Section 30 before they know what they are voting for is similar to asking people to vote on devo-max before they know what they are voting on. Since we argued successfully against that-that people should not be asked to vote for a "pig in a poke"-if that applies in the Scottish referendum surely it applies in this House and the other Chamber.

Lord Strathclyde: My Lords, the noble Lord said that compromise was necessary and I think that all those who have followed this process would agree with him. He also mentioned clarity and we do have clarity in the single question. I am one of those who have never entirely understood what is meant by devo-max, and if you ask three people what they think it is you always get four different answers. Therefore, it is entirely right that we remove the opportunity for that question to be asked.
	The question on the paper will be a question on independence. The precise wording will be for the Scottish Parliament to determine and will be set out in the referendum Bill to be introduced by the Scottish Government. However, the Scottish Government have agreed to refer the proposed referendum question and any preceding statement to the Electoral Commission for review of its intelligibility. It is important that interested parties will be able to submit their views on the proposed wording to the Electoral Commission as part of the commission's review process in the normal way.
	We have had experience of this already, although admittedly perhaps not on something this important or involving the Scottish Parliament. The Scottish Government will respond to the report, indicating their response to any recommendations that the Electoral Commission may make. The point is that this will be a very public process. Equally, constitutionally it is right that it must be up to a parliament to decide what question should be on the paper. That is what this Parliament would demand and I can understand why we have concluded that it is right for the Scottish Parliament to do the same thing.

Baroness Liddell of Coatdyke: My Lords, I am grateful for the opportunity to add to this debate. There has been a startling degree of naiveté on the part of the Government in the negotiations that have taken place so far. I noted that the noble Lord the Leader of the House talked about the need for transparency and a level playing field, and he discussed the fact that a body of work is to be undertaken to ensure that the facts are properly put before the people of Scotland. I say to him that that is not enough. We have already had a degree of sophistry and confusion over whether Scotland would automatically be a member of the European Union and would have to adopt the euro. I have no doubt that, as a Scotsman, the noble Lord the Leader of the House has used the old toast, "Here's tae us. Wha's like us? Damn few, and they're a' deid". That means that anyone who suggests that after independence Scotland will not be a land of milk and honey will be rubbished. It is not enough to say that a body of work will be undertaken. There will be a requirement for rebuttal and I ask the Minister to look hard at establishing a panel of neutral experts who will be available for that process of rebuttal.

Lord Strathclyde: My Lords, I slightly object to the accusation of naiveté. Many of us warned the Labour Party many years ago that this is exactly what would happen, and it was senior members of the Labour Party who continually told us that this was the thing that would stop the nationalists in their tracks. However, the years go by and now here we are, all working together to try to stop this process. I do not think there is any naiveté anywhere in this Government about the role that the First Minister of Scotland takes or the verbal gymnastics and occasional distortions that take place. The Government are utterly committed to providing evidence-based information to the people of Scotland so that they can very clearly see what the impact of breaking up the United Kingdom would be and what the separatist cause would lead us to.

Lord Selkirk of Douglas: My Lords, will the Leader of the House accept that, while some tactical advantages may have been gained by the Scottish Administration during the formation of this agreement, these are outweighed by the fact that there will be one single question? Will he also accept that the large increase of powers for the Scottish Parliament in the Scotland Act have been consistently underestimated and that further issues relating to devolution should be set aside until the result of the referendum is made entirely clear?

Lord Strathclyde: Yes, my Lords, I agree with my noble friend that there is no need to discuss any further devolution settlement until the referendum has taken place and that there is also a pipeline of provisions in the Scotland Act. I am not sure that the nationalists have received a tactical advantage, but it is now right that the decision should be brought to the Scottish people.

Lord Foulkes of Cumnock: My Lords-

Baroness Symons of Vernham Dean: My Lords-

Lord Foulkes of Cumnock: My Lords, there is a paragraph in the agreement which says that,
	"the referendum should meet the highest standards of fairness, transparency and propriety".
	I have one simple little question. If, after we pass the Section 30 order, the UK Government think that the proposals do not meet the highest standards of fairness, transparency and propriety, what recourse do they have?

Lord Strathclyde: My Lords, I have tried to explain that the Scottish people-who, as the noble Lord knows well, are a fair-minded and educated people-will see through anything that is not fair-minded and responsible. The time has come to trust the people of Scotland. As my noble friend Lord Steel pointed out a few minutes ago, it is true that as this debate has raged in the past couple of years the opinion polls have swung in favour of maintaining the United Kingdom.

Financial Services Bill
	 — 
	Committee (7th Day) (Continued)

Schedule 11 : The financial ombudsman service
	Amendment 187E
	 Moved by Lord Flight
	187E: Schedule 11, page 242, line 16, at end insert-
	"After section 225 insert-
	"225A General obligations
	(1) In discharging its functions, the scheme operator must comply with the requirements of this section.
	(2) The scheme operator must, so far as is reasonably practicable, act in a way which is compatible with the FCA's strategic and operational objectives and regulatory principles.""

Lord Flight: My Lords, the series of amendments in my name are among those from Amendments 187E to 187T, and are all concerned with the interaction between the Financial Ombudsman Service and the new regulatory bodies under the new order set out in the Bill. I start by saying that I have been extremely impressed with the success of the Financial Ombudsman Service and the work that it has done. When it was set up, I was slightly concerned that its brief went beyond the law, but it has established a very successful record.
	I shall go through these amendments. Amendment 187E seeks to require the Financial Ombudsman Service to exercise its functions in a way that is consistent with the FCA's strategic and operational objectives, and with its regulatory principles-on the same sort of basis on which the Legal Services Ombudsman is subject to a high-level requirement to operate within the regulatory framework for legal services.
	Amendments 187F through to 187L reflect some reservations about the new requirement on the FOS to publish reports of all its determinations. While supporting transparency in key FOS decisions, these amendments are designed to focus on more purposeful disclosures, which would be more beneficial for consumers and firms than the necessity to publish all decisions. A more balanced and focused approach to the legislation should give the FOS the statutory option, rather than the statutory obligation, to publish its determinations. This option should be balanced by safeguards for a firm to challenge publications which it considers inappropriate.
	Amendment 187N seeks to make the FCA responsible for responding to regulatory issues with wider implications arising from complaints, while Amendment 187P seeks to require the FCA to conduct strategic high-level oversight of the Financial Ombudsman Service to ensure that it operates in a way that is consistent with the FCA's objectives. In particular, to strengthen the accountability of the FOS the FCA should conduct regular reviews of its overall operations, policies and procedures. This would not and should not compromise the operational independence of the ombudsman when adjudicating on individual cases.
	Amendment 187Q seeks to set out that the FCA should set out a clear process for decision-making on cases requiring regulatory or legal clarification. Amendment 187S intends that the FCA, not the FOS, should make the scheme rules. The legislation should more clearly define a fair and reasonable test, and the ombudsman should be required to take into account the FCA's objectives, laws and regulations in force at the time of the complaint. Finally, Amendment 187T would require the FOS to be obliged to consult stakeholders before it issues guidance or technical notes about its procedures and its approach to handling common categories of cases.

Baroness Sherlock: In addressing this group of amendments, I remind the House of my declared interest as the senior independent director of the Financial Ombudsman Service. I hope that the House will bear with me while I go through the many amendments of the noble Lord, Lord Flight, beginning with Amendment 187E. I am concerned that this amendment would begin to compromise the independence of the ombudsman service. The ombudsman's responsibility is to resolve complaints informally and promptly by considering what is fair and reasonable in respect of each individual complaint. That role is very different and distinct from that of the regulator and it feels important to all concerned that the two are kept distinct.
	In making decisions, the ombudsman is already required by the rules to take into account a series of things: the law and regulations, the regulator's rules, the guidance and standards, the codes of practice, and good industry practice at the time. In that way it is for the regulator to interpret its objectives and for the ombudsman to reflect this interpretation by taking into account the rules and guidance which the regulator publishes. I therefore do not think that this change is necessary, but I will go further and say that it potentially risks the unintended consequence of requiring the ombudsman to interpret the regulatory objectives of the FCA directly. Given that the nature of those proposed regulatory objectives is very wide-going, for example, up to the competition objective-it does not seem to me desirable that the ombudsman service should be put into the position of having to interpret them.
	Those comments relate also to Amendment 187P, which seeks to change the relationship between the ombudsman service and the FCA in a way that again risks undermining the model of an independent ombudsman service. The ombudsman should clearly be accountable, and I welcome the provisions already in the Bill to strengthen that accountability: for example, by making formal requirements which the ombudsman has already undertaken voluntarily. The ombudsman will, for example, become subject to audit by the National Audit Office-something that it has embraced by going ahead early and voluntarily asking the NAO to come in and do an audit. However, to move to a compulsory annual review on top would involve significant diversion of effort, both by the FCA and the ombudsman service.
	Related issues emerge in Amendment 187S, which would give the regulator the power to decide not just which complaints the ombudsman should decide, as now, but how the ombudsman should go about doing this, which would undermine the operational independence of the ombudsman service as an alternative to the courts. The regulator already determines the jurisdiction of the ombudsman-that is, which complaints can be considered-but the ombudsman service makes its own rules, which set out how it will deal with cases. Those are its own internal procedures, covering, for example, criteria for dismissing cases, evidential requirements, delegation by ombudsmen, rules about case fees and any costs rules. The ombudsman service is required by FiSMA to consult those likely to be affected and to have regard to any representations made by them. The rules are, of course, already subject to approval by the FSA and will be by the FCA, but deciding how to resolve cases is a crucial feature of the ombudsman's independence, and that must be retained.
	A slew of amendments, Amendments 187F to 187L-the noble Lord, Lord Flight, has been prolific-relate to the publication of ombudsman decisions. I am concerned that their effect would be to undermine the main advantage of the publication of decisions, which, it seems to me, is to share a fuller picture-a complete picture, indeed-of the cases the ombudsman deals with and his approach to resolving them. As drafted, the Bill provides a very clear obligation on the ombudsman to publish decisions unless there are very good reasons not to do so. That clarity is very welcome. The ombudsman has talked to stakeholders about how he might go about doing something such as this should Parliament decide to go down that road. Many stakeholders were very supportive of the proposed approach to publish all decisions. In my view, transparency has benefits for all involved; it can help to increase the accountability of the ombudsman, but it can also mean that cases that could be wasteful may be diverted right at the outset.
	Amendment 187N also causes me concern for a different reason; it might risk challenging the work of the ombudsman to provide a prompt as well as an informal resolution of complaints, which is an important safety net for consumers. If the aim of the amendment-perhaps the noble Lord, Lord Flight, could clarify this-is to enable the regulator to deal with issues that have wider implications, it is unnecessary because the regulator is already able to do this by using Section 404 powers under FiSMA to impose a redress scheme which the ombudsman is required to follow. Of course, all the FiSMA organisations work well together anyway. The ombudsman regularly meets the FSA, the OFT and the compensation service to discuss emerging issues that could develop into risks, and wider implications can thereby be tackled. Actually, many cases could have wider implications, so if the legislation says that any case with wider implications means that all similar cases should be put on hold, that could be of significant detriment to consumers by introducing potentially massive delays into the system.
	Amendment 187Q potentially misunderstands the way in which the ombudsman service is designed to resolve complaints. As I have said, the ombudsman resolves what is fair and reasonable in all the circumstances of the case, including relevant laws, regulations and industry practice. In the same way that a court interprets legislation, the ombudsman interprets laws and regulations. He already has access to guidance published by the regulator and regularly meets the regulator, providing opportunity for any clarification. If the regulator takes the view that he needs to take specific action, he can use Section 404 of FiSMA to impose a redress scheme.
	Finally, I am very concerned about Amendment 187T. As proposed, it would mean that the ombudsman would be prevented from publishing almost anything without having first consulted. That would be an unprecedented burden on an organisation that needs to communicate with its many stakeholders. If, as seems likely, the amendment is intended to address the technical notes published by the ombudsman-I see the noble Lord, Lord Flight, nodding, so I will address that point-it is worth noting that the ombudsman is not a regulator and so does not produce guidance on how to comply with regulatory requirements. Those technical notes are not out there as instruction as to how someone should go about complying with what the regulator does; they are simply a better account of what the ombudsman has done in reaching a decision on individual cases, which may go on to be helpful to both businesses and consumers in considering which cases are likely to succeed and how they might be dealt with. They are not regulatory notes and the ombudsman is not in that territory. It seems to me to be crucial that the ombudsman service retains the autonomy to establish and set out its own approach. That is essential to maintaining the independence of the scheme.
	The amendments in this group, although individually some of them may be seem address specific issues, are almost all either unnecessary or problematic, but taken together they would tighten control of the independent ombudsman service by the FCA. In doing that, two things would happen. First, we would risk compromising the independence of the service and the very nature of an independent ombudsman service. Secondly, we would risk blurring the distinction between the regulator and what is basically just an alternative dispute resolution service. Any blurring in that territory would be bad for consumers, bad for business and bad for public policy.

Baroness Hayter of Kentish Town: I shall deal with our own amendment in this group, Amendment 187RZA, which is virtually the same as Amendment 187T. We should clarify that our idea is not to cover everything that the FOS produces. The Financial Ombudsman Newsletter is one of the best publications I have seen; it beautifully describes the cases and gives a lot of guidance, with a small "g". The intention of our amendment is that any guidance is fully consulted upon where such guidance could lead to a "safe harbour", and should therefore take account of all relevant interests, including those of the industry and consumer groups.
	I turn to some of the other amendments tabled by the noble Lord, Lord Flight. Two major changes are suggested that worry us. One would virtually make non-publication the default option, with the Financial Ombudsman Service having to justify in each "particular case" when it wants to publish, having given the respondent-but not, interestingly, the complainant-the right to argue for non-publication. In our view this is not in line with the Hunt report and would not amount to the transparency and openness to which consumers have a right.
	The second issue is the one that my noble friend Lady Sherlock has just been talking about-cases that have wider implications, such as PPI, where it soon became evident to the ombudsman that the mischief went far wider than a particular provider. While we welcome an early alert from the Financial Ombudsman Service to the FCA that something is going amiss and that regulatory action or new guidance might be required, it seems to us quite wrong to put on hold an individual's claim for compensation when they have clearly been mis-sold a product and might be out of pocket. We do not agree that the individual consumer's justified complaint should be suspended while a large bureaucracy-I am afraid that that is what the FCA will be, with its need to consult and so on-gets its act together.
	As we have heard, the ombudsman's role is to resolve complaints-speedily, we hope-that have not been satisfactorily dealt with by the service provider, which is of course always the first and best option. If PPI is anything to go by, though, the banks could and should have refunded the money themselves pretty speedily and stopped selling the product unwisely. It is this that would have stopped the consumer detriment, and incidentally saved the banks a lot of money further down the track.
	Other amendments from the noble Lord, Lord Flight, in this group seek to include the rationale for each published decision to be explained. However, our fear is that this would add considerably to the process for handling cases and undoubtedly to the costs, and we would be surprised if the industry were in favour of that since it funds all this.
	By including "operations, policies and procedures", Amendment 189P would appear to us, as my noble friend Lady Sherlock said, to risk undermining the independence of the ombudsman service. We hope that that was not the intent, but we have a similar concern about Amendment 187S, which would appear to give the regulator the power to decide not only which complaints the ombudsman can decide on but, worryingly, how the ombudsman should do so. That would undermine the very independence of the ombudsman, which is of course meant to serve as an informal alternative to the courts.
	With regard to Amendment 187Q, as my noble friend Lady Sherlock also reminded us, the FSA-or, as it will be, the FCA-is already able to make a redress scheme under Section 4 of FiSMA, the effect of which is to bind the ombudsman, so there is probably no need for it.

Lord Newby: My Lords, I am very tempted to say that I agree with the noble Baroness, Lady Sherlock, and sit down.

Lord Flight: Quite right.

Baroness Hayter of Kentish Town: Hear, hear.

Lord Newby: Sadly, however, I ought to explain the Government's view of these amendments. Amendment 187E would require the FOS to exercise its functions in a manner consistent with the FCA's strategic and operational objectives and the regulatory principles. Obviously the FCA will have an important role making and approving the rules of the ombudsman scheme, and must comply with its regulatory objectives and principles in doing so, but I do not believe that the regulator and the FOS should share the same objectives or be held to the same regulatory principles.
	The FOS is not a regulator and should not be expected to act like one. Its role is to provide an impartial alternative dispute resolution service for consumers and firms. It is not a consumer protection body, and I would be concerned that by giving the ombudsman consumer protection objectives we would put that impartiality at risk. Moreover, in practice such a duty would be burdensome and difficult to interpret.
	Amendment 187P is similar to Amendment 187, in that it seeks to hold the FOS to the FCA's objectives and principles. However, it goes further by giving the FCA a role in ensuring that the FOS complies with those objectives and principles, and in carrying out an annual review of the FOS operations, policies, and procedures. The FSA already has a role in overseeing the FOS, which the FCA will retain-appointing and removing the board of the scheme operator, for example. However, the FOS's claim to impartiality, and hence its legitimacy in making determinations that are binding on firms, is credible only if it is operationally independent of the regulator. This does not mean that it should be unaccountable or free from scrutiny-this is why we have brought in provisions requiring the FOS to be audited by the NAO. Associated with these new powers, the NAO will be able to launch value-for-money studies of the FOS. However, to require the FCA to ensure that the FOS complies with its objectives would require detailed oversight and control of the FOS's day-to-day operations, which in our view would not be compatible with the FOS's independence.
	Amendments 187F to 187L relate to the new transparency requirements for FOS, under which the ombudsman scheme operator will have a duty to publish a report of determinations unless, in the opinion of the ombudsman, it would be inappropriate to do so. Amendments 187F, 187G and 187H seek to reverse the proposed new provisions, leaving the scheme operator merely with a power to publish determinations if it decides that it is appropriate, and a duty to explain the rationale for publication in that case.
	Previously, ombudsman decisions have been published by one or other of the parties involved, leading to a partial and sometimes misleading picture of the way in which the FOS made decisions. Now that the FOS is subject to the Freedom of Information Act, ombudsman decisions may also be published in response to requests for information under that Act, so there is clearly a need for change.
	Amendment 187J seeks to modify the transparency arrangements to provide anonymity for the respondents except where they agree to be identified. However, in many cases it will not be possible to redact all the information by which a firm could be identified without thereby withholding key elements of the substance of the decision-for example, the content of a firm's advertising material, policy wordings, and product names-and there is no reason to think a firm's reputation should be unfairly tarnished by the publication of a decision. However, I entirely agree with my noble friend that there is a case for withholding genuinely commercially sensitive information. The FOS will have the power to do that, and has made it clear in its consultation on transparency earlier in the year that it intends to protect commercially sensitive information.
	Amendments 187K and 187L would provide for a minimum period of 28 days between the scheme operator considering a determination for publication and its taking the decision to publish, during which the respondent may make representations. It is of course important that firms get a fair hearing but, as I have said, by the time a decision is published, firms have had many opportunities to explain their side of the case already, and the ombudsman scheme rules already provide for firms to be able to provide sensitive information to the ombudsman in confidence. Given that this route already exists for the firm to identify information that it would be inappropriate to make public, I would be concerned that firms may see a process to make further references, as the amendments propose, as an opportunity to appeal the substance of the decision itself. However, I reassure my noble friend that the FOS would be very open to listening to proposals from firms about how best to ensure that it does not publish sensitive material.
	Amendment 187N would require the FOS to suspend cases and refer the matter to the FCA when it encounters an issue with wider implications. Obviously the FOS will encounter issues that demand a response from the regulator, and there need to be clear duties and routes for the FOS to raise these issues with the FCA. I draw my noble friend's attention to the measures in the Bill that provide for this. In future the FOS will be required to share information with the FCA that it considers relevant to the FCA's objectives. The FCA is in turn required to take account of this information. In addition, the Bill introduces a mechanism whereby the FOS and the firms concerned can refer issues of mass detriment to the FCA, and the FCA will have to publish a response within 90 days, which is a very much improved procedure over what has obtained in the past. The response from the FCA might set out a timetable for regulatory action that would allow the FOS to consider whether or not to place a hold, or stay, on complaints. I reassure my noble friend that the Government share his concerns, and we think that we have taken measures in the Bill to address them.
	Amendment 187Q seeks to require a clarification procedure for regulatory matters arising from complaints to be resolved by the FCA or for the FCA to provide guidance. While supporting the spirit of these amendments, my concern about the clarification procedure proposed is that it would be overly bureaucratic and could blur the distinct remits of the regulator and the ombudsman. The FOS's role is to provide swift and low-cost dispute resolution. In doing so it must of course take into account, among other things, the relevant law and the regulators' rules and guidance. It cannot, in practical terms, be expected to refer an issue to the regulator every time it encounters regulatory matters, any more than it could be expected to refer a matter to the courts every time it encountered a legal matter. We have included a package of measures in the Bill to improve co-ordination and co-operation between the FCA and the FOS. These include the new information-sharing and co-ordination provisions, as well as a new mechanism for the FOS and firms concerned to refer issues of mass detriment to the FCA.
	Amendment 187S would require the FCA to make the detailed procedural rules for the ombudsman scheme rather than approve rules made by the FOS itself as at present; and to define the factors the FOS must take into account in its "fair and reasonable" test in legislation. On the first part of the amendment, the FSA already makes rules concerning key elements of the FOS's compulsory jurisdiction. The more detailed rules of the ombudsman's procedures are made by the FOS itself with the FSA's consent. This strikes the right balance. As part of its operational independence, the FOS is responsible for preparing the detailed procedural rules which the regulator must approve. The alternative would be for the regulator to be directly responsible for running the ombudsman.
	The second aim of the amendment is to fix in legislation the matters which the FOS must take into account in determining what is fair and reasonable. This is currently set out in ombudsman scheme rules. As such, the amendment does little to change the way in which the FOS applies the fair and reasonable test. Its main effect is to fix in primary legislation part of a description of detailed factors which is currently in more flexible scheme rules.
	Amendment 187T would require the FOS to publicly consult on any and all information, guidance or advice it produced prior to publication. It is identical to an amendment tabled and withdrawn in Committee in another place, where it was debated at length. I do not want to dwell too long on the detailed arguments. The Government are clear that it is important that the FOS consult on a wide range of things-its rules and business plan, for example-but not on absolutely all the information it publishes, as the amendment would require. The fact that the FOS receives very little feedback on these notes at the moment suggests that full public consultation prior to publication is not justified.
	I hope that the noble Lord can take some comfort from that, and will understand why I cannot accept the very broad amendment to require the FOS publicly to consult in advance on all the information it publishes. On the amendment of the noble Baroness, Lady Hayter, in practice the FOS will publicly consult in those areas which are, understandably, of particular concern to her. In the light of these explanations, I hope that my noble friend will withdraw his amendment.

Lord Flight: My Lords, I started off by paying tribute to the success of the ombudsman's service. There is a clear argument here for saying that if it ain't broke, don't fix it. A number of the points underlying these amendments have been raised with me by the insurance industry, to a large extent in a probing fashion. I am pleased to note that quite a lot of the underlying points have already been dealt with; if there is anything ongoing which the ombudsman's service and the FSA want to pick up between them, they can have a word with the insurance industry. On that basis, I beg leave to withdraw the amendment.
	Amendment 187E withdrawn.
	Amendments 187F to 187L not moved.
	Amendment 187M
	 Moved by Lord Sassoon
	187M: Schedule 11, page 243, line 17, at end insert-
	"In section 232 (powers of court), in subsection (2), after "director or" insert "other"."
	Amendment 187M agreed.
	Amendments 187N to 187Q not moved.
	Amendment 187R
	 Moved by Lord Sassoon
	187R: Schedule 11, page 244, line 22, at end insert-
	"In paragraph 6 (status), in sub-paragraph (2), omit "board members,"."
	Amendment 187R agreed.
	Amendments 187RZA to 187T not moved.
	Amendment 187TA
	 Moved by Lord Kennedy of Southwark
	187TA: Schedule 11, page 246, line 28, at end insert-
	"29 After paragraph 22 insert-
	"Part 5Complainant representativesIntroduction
	23 This Part of this Schedule applies to a complaint under the compulsory jurisdiction, the consumer credit jurisdiction or the voluntary jurisdiction in respect of which the complainant has entered into an agreement with a complainant representative.
	24 A "complainant representative" is a person who has entered into an agreement with a complainant with respect to a complaint pursuant to which any fee has been, will be or may be paid by the complainant.
	Complainant representative rules
	25 The scheme operator must make rules, to be known as "complainant representative rules", which are to set out requirements applicable to complainant representatives and to complaints falling within paragraph 1.
	26 Complainant representative rules may, among other things-
	(a) require that a complainant representative disclose to the scheme operator the agreement referred to in paragraph 2 when a complaint within paragraph 1 is made;
	(b) require a complainant representative to take reasonable steps to obtain from the complainant, and as appropriate to supply to the ombudsman, such information as an ombudsman might reasonably require to determine a complaint;
	(c) provide for the consequences if a complainant representative does not comply with complainant representative rules or other applicable legal or regulatory requirements, including requiring or enabling the ombudsman not to consider any complaint or to consider a complaint only if conditions specified by the ombudsman have been satisfied;
	(d) enable the ombudsman to dismiss a complaint without consideration of its merits where the complainant representative has not cooperated with reasonable requests made by the respondent, including not providing adequate information as to the true nature of the complaint.
	27 Complainant representative rules shall not require the disclosure to the ombudsman scheme of any material which is legally privileged.
	Consultation
	28 If the scheme operator proposes to make any complainant representative rules it must publish a draft of the proposed rules in the way appearing to it to be best calculated to bring them to the attention of persons appearing as likely to be affected.
	29 The draft must be accompanied by a statement that representations about the proposals may be made to the scheme operator within a time specified in the statement.
	30 Before making the proposed complainant representative rules, the scheme operator must have regard to any representations made to it under paragraph 7.
	31 The consent of the Authority is required before any complainant representative rules may be made.""

Lord Kennedy of Southwark: My Lords, in moving this amendment I am seeking to get a proportionate framework in place that is good for consumers, but which is also good for the financial institutions complained about and the responsible claims management companies that take up complaints on behalf of consumers. That will move us all on from the unsatisfactory situation we find ourselves in at the moment.
	A number of CMCs do not adhere to best practice and the consumer has little redress. My amendment would improve that situation for them with the drawing up of claimant representative rules, which are long overdue. Between April 2011 and March 2012, CMCs operating in the PPI sector generated 74% of consumer complaints overall. Of these, the majority related to some 15-20 CMCs. The source for these figures is the Ministry of Justice claims management regulation unit, so they are government figures.
	I am very clear that in the mis-selling of PPI, the banks and other financial institutions behaved very badly. It is right that consumers have proper redress and compensation for their loss. I agree with my noble friend Lady Hayter that the banks could have done much more much sooner to deal with these issues.
	However, the bombarding of financial institutions with claims from people who have never had any sort of relationship with the financial institution is bad practice. It is a fishing expedition that wastes the time and the money of institution, and it clogs up the system for people who have a legitimate claim, making them wait even longer for redress.
	Why is this done? Because there are huge sums of money to be made in fees. Who has not had an unwanted text message or phone call? While there are regulations already in place and mechanisms to deal with these breaches, we all know that they are not enforced and it is the consumer that suffers. An example of this is the Hinckley and Rugby Building Society, which revealed that 97% of the PPI-related complaints it has received in the three months to September 2012 were from people who are not members of, or have any relationship whatever with, the society. While that figure is lower for banks, there is still a huge number of pointless vexatious claims. Last year 69% of all PPI cases went to the ombudsman via CMCs. A small number of CMCs which are not playing by the rules are making an unfortunate situation even worse. They are not acting in the consumers interests. My amendment is an attempt to find a positive way forward, good for consumers, good for the financial institutions and good for the responsible claims management companies.
	I hope that the noble Lord can give us a full response so that we can understand where the Government are on this matter. While I have no intention of pressing this to a vote, I hope that the noble Lord will agree to my meeting the relevant Minister outside the Chamber as I want to use this process to improve the lot for consumers, and the time has come for the Government to act.

Lord McFall of Alcluith: My Lords, I support my noble friend Lord Kennedy in his proposal, not least because, on my way down on the train today, I received a call from 0843 5600827. They wished to talk to me about my PPI claim of £3,350. Notwithstanding that, I received a text message saying that "time is running out". I have never taken out a PPI policy.
	This is an example of the instability which the industry is suffering at the moment because of this situation. I did chair a committee with consumer and industry representatives two months ago, in order for them to approach the MoJ to try to sort this issue out. Given these demands that have been made on the industry, the £8 billion that has been put aside for PPI mis-selling will surely increase. Let us not forget that we have interest rate swaps. On one of the sub-committees of the Parliamentary Commission on Banking Standards, of which I am a member along with the noble Lord, Lord Lawson, I asked an expert on interest rate swaps about the £8 billion. He said that that mis-selling could dwarf the £8 billion for PPI.
	So this issue is current and will have a destabilising effect on the industry for the next few years, and also on consumers' confidence. I do not think that the Government can escape their responsibilities on that by saying that this is not really a financial services matter, but for the MoJ. It is most certainly having an impact on financial services at the moment. Therefore, as a matter of urgency, the Government should take note of my noble friend Lord Kennedy's amendment so that they can look at this issue in the cold light of day, outwith this Chamber, and get an adequate and decent solution, both for the industry and for the consumers who are suffering.

Baroness Kramer: My Lords, I suspect that everyone in this House has been plagued by the various attempts by the claims industry to get us to pass over all kinds of personal detail. That worries me. Anecdotally, I have heard reports of people who responded positively to one of these messages and handed over their credit card details. They then found themselves being charged without realising that they were getting themselves into that situation. We have talked to various institutions, many of which say that half the claims presented to them are from people who have never had any relationship with them whatever. It was entirely a fishing expedition. At a time when we want our banks to focus on appropriate lending to individuals and small businesses, which they are all struggling to do effectively, to have the complete distraction and cost associated with keeping this abusive industry afloat is surely unacceptable to all of us.

Baroness Sherlock: I support in particular the comment made by my noble friend Lord Kennedy at the end of his contribution. He asked the Minister whether he would meet with my noble friend and other interested Members to consider if not this then what other action can and should be taken. I think that the House would be particularly interested to hear the Minister's response on that.
	It seems quite obvious that as a market the CMC sector simply is not working. Not only are significant numbers of people being pressured essentially into doing things which they do not want to do, but there appears to be no price competition in the market at all. All the evidence shows that consumers are just as likely to use a claims management company which charges 40% as one that charges 15% of any money that they might get back. Many simply are not aware that they could do it for themselves for free by going directly to the ombudsman.
	If the Minister is not minded to go in that direction, will he tell the House two things? First, what would the Government be able to do very soon that would have a significant impact on targeting in particular the minority of claims management companies that are behaving very badly? Secondly, will he at least agree to meet interested Peers to discuss that matter very soon?

Lord Newby: My Lords, I share the concerns behind the amendment about the activities of CMCs in relation to financial services products. Like all noble Lords, I have been approached by them with the most spurious and ridiculous arguments about why I should give them details about my financial affairs in return for some often unspecified benefit. We start off by sharing that concern.
	I would be more sympathetic to the amendment if I did not think that the Government were already doing something about it. I am very happy to meet noble Lords who would like to discuss the matter, along with colleagues from MoJ, to see what might be done to expedite effective action. But I do not think that it is necessary or appropriate to expect the FOS to step in as a quasi-regulator and make its own conduct rules. The role of the FOS should be to act as an independent dispute resolution service and not to act as a quasi-regulator of CMCs. It is just the wrong organisation to do that.
	As I have said, I am sympathetic to what the noble Lord is seeking to achieve and I give an undertaking to set up a meeting to discuss it further. On that basis, I hope that the noble Lord can withdraw his amendment.

Lord Kennedy of Southwark: I thank the noble Lord for his response. I certainly think that we need to work on something. I know he says that things are in place but it is fair to say that they are not working well at the moment and that we need to do much better. On that basis, I beg leave to withdraw the amendment.
	Amendment 187TA withdrawn.
	Schedule 11, as amended, agreed.
	Clause 37 : Lloyd's
	Amendments 187TB to 187TD
	 Moved by Lord Newby
	187TB: Clause 37, page 120, line 20, at end insert-
	"(ii) in paragraph (b), for "section 315" substitute "provision made by or under this Act", and"
	187TC: Clause 37, page 121, line 27, at end insert-
	"(ii) in paragraph (c), for "section 315" substitute "provision made by or under this Act"."
	187TD: Clause 37, page 121, line 38, at end insert-
	"( ) In section 317 (the core provisions), in subsection (1), for "X" substitute "9A"."
	Amendments 187TB to 187TD agreed.
	Clause 37, as amended, agreed.
	Clause 38 agreed.
	Schedule 12 : Amendments of Parts 11 and 23 of FSMA 2000
	Amendment 187TE
	 Moved by Lord Tunnicliffe
	187TE: Schedule 12, page 247, line 24, at end insert-
	"(c) after subsection (10) insert-
	"(11) The PRA should require the submission of reports from any PRA-authorised person for the purpose of assessing the extent to which a financial activity or financial market in which the PRA-authorised person participates may pose a threat to financial stability in accordance with the PRA's general objective.
	(12) The PRA shall collect, in a manner determined by the PRA and in consultation with the FPC, financial transaction data and position data from the PRA-authorised person companies.
	(13) For the purposes of subsection (12)-
	(a) "financial transaction data" shall mean data pertaining to the structure and legal description of a financial contract, with sufficient detail to describe the rights and obligations between counterparties and make possible an independent valuation; and
	(b) "position data" shall mean data pertaining to data on financial assets or liabilities held on the balance sheet of a financial company, where positions are created or changed by the execution of a financial transaction and which includes information that identifies counterparties, the valuation by the financial company of the position, and information that makes possible an independent valuation of the position.
	(14) The FCA shall assist the PRA in accordance with section 3D to ensure that the PRA is able to exercise its function as described in subsections (11) and (12).
	(15) To facilitate the effective collection of data, the PRA should prepare and publish, in a manner that is easily accessible to the public and in the form of a summary or collection of information so framed that it is not possible to ascertain from it information relating to any particular person-
	(a) a database detailing relevant counterparties;
	(b) a financial instrument reference database; and
	(c) formats and standards for PRA data, including standards for reporting financial transaction and position data to the PRA.
	(16) Where possible, the PRA shall co-operate with foreign regulators to the extent required to collect relevant information on PRA-authorised persons already collected by those foreign regulators.
	(17) The PRA shall develop and maintain sufficient resources to review the collection of data referred to in subsections (11) and (12) in order to-
	(a) develop and maintain metrics and reporting systems for risks to the financial stability of the United Kingdom;
	(b) evaluate stress tests or other stability-related evaluations of financial entities overseen;
	(c) investigate disruptions and failures in the financial markets;
	(d) conduct studies on the impact of policies relating to systemic risk;
	(e) promote best practices for financial risk management to PRA-authorised persons.
	(18) The PRA shall publish a report which compiles the data collected in accordance with subsections (11) and (12) on a periodic basis as determined by the PRA, which shall be-
	(a) made available to the public in an easily accessible medium; and
	(b) in the form of a summary or collection of information so framed that it is not possible to ascertain from it information relating to any particular person.""

Lord Tunnicliffe: My Lords, Amendment 187TE, in the name of my noble friend Lady Hayter of Kentish Town, is essentially about the quality of information and its provision. To put it in context, I should like to go back to the purpose of the Bill. I put to the House that its purpose is to prevent or mitigate a crisis in the financial services industry. The crisis from 2007 to 2009 came from the selling of subprime mortgages principally in the US. As we know, these mortgages were repackaged and moved down the line. Eventually, they ended up on the balance sheet of what one would have thought at the time were highly sensible banks of great stature and stability.
	How did that happen? It happened because of the malicious intent of the original designers of these products and the people who designed the various packages to disguise the essential weakness that they contained. But when you read the various reports about the crisis, there is no question that a fundamental part of this crisis was caused by the poor knowledge and information that passed through the system. In a sense, the poor knowledge was in two places. It was within the firms, and between the firm and the regulator. In particular, the FSA's report on the RBS brings this out well. Essentially, parts of RBS simply were not effectively communicating with each other.

Lord Flight: Perhaps I may add that in my estimate the US also wiped off about $1,000 billion of its overseas debt as a result of the failure of subprime mortgages.

Lord Tunnicliffe: As a great admirer of the US, I would never underestimate its ingenuity but I did not realise that that had been a principal objective. I thank the noble Lord for my improved education. Returning to my speech, the failure in RBS in particular was once again an internal management problem. The refreshingly honest report of the FSA brings that out but it goes on to criticise its own performance as a regulator. It criticises various ways in which it behaved and its allocation of resources but it also criticises the information that it was able to get during the crisis. That was because firms were unable to provide information that was sufficiently accurate, comprehensible and timely.
	The Joint Committee on this Bill took a considerable interest in the whole matter of information and pointed out that in the US the,
	"Dodd-Frank Act created the Office for Financial Research which was given responsibility for monitoring of systemic financial risks and, in order to undertake this task, has been given powers for the setting of data standards for the industry. In order to allow effective monitoring of systemic financial risk, the Dodd-Frank Act also requires that OTC derivative contracts are recorded in trade repositories, a step that requires standardisation of reporting across the industry".
	The recommendation from the Joint Committee, which the Government effectively rejected, was:
	"The Bill should be amended to place a duty on the Bank of England (or its subsidiary the PRA) to develop information standards for the UK financial services industry and to report regularly on progress in improving these information standards in order to support financial stability".
	This amendment does its best to give effect to that recommendation.
	In researching the background to this amendment, I looked over a number of areas but perhaps the most inspirational thing I came across was a speech by Andrew G Haldane, Executive Director, Financial Stability, Bank of England, at the Securities Industry and Financial Markets Association, "Building a Global Legal Entity Identifier Framework" symposium in New York on 14 March. That is a long introduction but it was called simply "Towards a common financial language". He contended that a common financial language would improve risk management in firms because of better flows and understanding of information; improve risk management across firms; map the network of financial transactions; and, shock-horror, lower barriers to entry. He pointed out that the information standards and information systems within the industry are probably 10 or 20 years behind those in other industries, and particularly the major distribution industries.
	We put forward this amendment and it will no doubt be countered by the noble Lord saying, "Well, they can do this anyway". We are trying to say something different. We are trying to say that this is not just an enabler but a doer. It is a requirement not just that the PRA has the ability to take a positive role in the matter of information and information standards, but requires it to take a role. It is quite long so I will not go through it in any detail but it requires the PRA to require firms to report; it requires them to set standards in the manner in which they report; it requires that they should have sufficient resources to be able to use that information; and it requires them to publish reports.
	The Bill has a purpose. It is about institutions, it is about governance and it is about enabling. The amendment is designed to give it some teeth. It is designed to make a requirement in the Bill. This is a "must" amendment, not a "may" amendment. I beg to move.

Lord Newby: My Lords, as the noble Lord has explained, Amendment 187TE would require the PRA to collect and publish financial transaction data, and require it to maintain the necessary resources to collect and review data from firms. In doing so, it mirrors exactly the provisions of the Dodd-Frank Act and in particular the provision in that Act for the powers within the Office of Financial Research.
	We do not think that such a power is necessary because the regulators here have their own powers to gather information, including all the information referred to in the amendment. Indeed in some cases the FSA already requires firms to hold information in particular ways; for example, through rules requiring firms to be able to present a single customer view. The fact that there is now the concept and the practice of a single customer view shows how the system has been able to develop in the light of the stresses and strains that it has found itself under in recent years. Firms already report transaction data and will continue to do so. Specifically mandating the regulator to develop data standards and to publish collected data, as the noble Lord suggests, is not in our view the answer. The legislation will set the regulators clear and deliverable objectives and the regulators already have powers that could be used to require them to hold their data in specific formats if they judge that to be an appropriate and proportionate way of meeting their objectives.
	If the FPC requires particular information in a particular format, whether about counter party exposures or about anything else, this will be provided by the PRA. If for some reason the PRA is not providing the necessary information, the bank has a backstop power to direct the PRA to gather it and provide it. There is a belt-and-braces provision in the Bill.
	The regulators will require a whole range of information from firms. It would not be possible or desirable to specify them all in legislation. The legislation gives clear and deliverable objectives and it is up to the regulators to maintain sufficient resources and to gather sufficient information to meet those objectives. They will be held to account for doing so. With that explanation, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Tunnicliffe: My Lords, I have received an unsurprising response. The essence of it is that those powers exist anyway. Perhaps the noble Lord can help me-I am not asking him to do so now-by writing to me setting out where these powers are in the new Bill. I have followed up the invitation of the Treasury and downloaded its very helpful Bill as amended. When you download it, you are told that it is 624 pages long and, therefore, it is not entirely easy to find things. I would be very grateful if I could be told where in FiSMA, as revised, these powers are and which of those powers is new because of the Bill. If there are not new powers because of the Bill, we have had regulators with these powers for a considerable time and as far as I can see we do not have the level of standardisation of data, the matching priority or the counter party exposure. We do not have anything like the ability to see into the systems that the new American provisions envisage. It is incumbent on us in this country, with our dependence on this important industry and the fact that the real economy depends on it as well, to have provisions which are not only wide in theoretical terms but provide actual knowledge of what is being done to make this industry safer, particularly as regards what this Bill does about making the industry safer. If the noble Lord leaps up now and reads his piece of paper I would not mind.

Lord Newby: Section 165 of FiSMA enables the regulators to require information or documents which may reasonably be required in connection with the discharge of their functions. Section 165A enables the regulators to gather information from certain categories of unregulated firms for financial stability purposes. Section 166 enables the regulators to appoint a skilled person to provide a report into any relevant matter that the authority may specify. The regulators can also make rules requiring firms to hold their data in specific formats, if the regulators judge that to be an appropriate and proportionate way of meeting their objectives. As I have already said, the FSA did so when it introduced the single customer view requirements.
	In terms of the system as a whole and what is new about the Bill as regards ensuring that the regulators get the information that they require in order to prevent some of the problems that we have seen in recent years, the whole purpose of the Bill is to put in place an architecture that enables a clearer focus by splitting the regulators into two halves so that they will concentrate on those parts of the industry for which they have now been given specific responsibility. I am sure that having those powers in the legislation, coupled with a new, more laser-like focus on ensuring that the system is safe and secure, will ensure that the concerns of the noble Lord about the information that is collected are not realised.

Lord Tunnicliffe: My Lords, I do not want this to go on, but there is a world of difference between having powers and knowing what people are doing with them. It is absolutely clear where the Americans are coming from; they want something done and they want something changed. I can now try to find these quotes in FiSMA and see how they impact but really I want to know what the regulators are doing. We are not opposing the Bill in general, certainly not in this House, and we wish the Government luck in its implementation, but at the end of the day it only moves people about and has a lot of interconnecting clauses. It does not specifically mandate a requirement to improve the quality of information. Any reasonable observer of the recent crisis has to say that one of the key issues in that crisis was the quality of information moving around within firms, between firms, and between firms and the regulator. The Government have to make a persuasive case that they are doing something about this deficit. Having said all that, I beg leave to withdraw the amendment.
	Amendment 187TE withdrawn.
	Amendments 187U to 187X
	 Moved by Lord Newby
	187U: Schedule 12, page 250, line 35, at end insert-
	"( ) at the end of paragraph (i), omit "or","
	187V: Schedule 12, page 250, line 37, after "insert" insert ""or"
	187VA: Schedule 12, page 254, line 20, leave out sub-paragraph (4)
	187W: Schedule 12, page 255, leave out lines 29 and 30 and insert-
	"(i) officers of, or members of the staff of, the regulator, or"
	187X: Schedule 12, page 255, line 43, leave out "or members of its governing body"
	Amendments 187U to 187X agreed.
	Schedule 12, as amended, agreed.
	Clause 39 : Auditors and actuaries
	Amendment 188
	 Moved by Baroness Wheatcroft
	188: Clause 39, page 124, line 20, at end insert-
	"( ) In section 340 of FSMA 2000 (appointment of auditors and actuaries) after subsection (2) insert-
	"(2A) Rules must require auditors of deposit taking institutions to provide a narrative report on the institution's risk management policies and its exposure to risk as part of the audited accounts of the institution.""

Baroness Wheatcroft: This is a simple amendment which I believe could have significant effect. Your Lordships will recall that just before our major banks admitted catastrophic losses resulting in multibillion-pound bailouts and the Government becoming a major shareholder in Lloyds and Royal Bank of Scotland those banks were each given clean audit reports. The annual reports which the auditors signed off were packed full of numbers and told us nothing. The auditors received huge rewards for their efforts, yet within months of them signing off those accounts without any qualification the taxpayer was having to fork out £65 billion-that is £1,000 for every citizen in the country.
	In February 2007 Northern Rock, which had a hugely risky business model, was given a clean audit report for its 2006 accounts. Within months it was clamouring at the door of the Bank of England for support as the queues mounted outside its branches. In February 2008 Lloyds and RBS each produced accounts for the preceding year. To judge from the unqualified audit reports each received, these were businesses which would happily carry on trading, yet just months later the Government were having to orchestrate a massive rescue package. Audit fees for those accounts were more than £13 million at Lloyds and £17 million at RBS. For what?
	Audit is a profession in which the UK has played a dominant role but the profession's role in the financial crisis does it no credit. The Economic Affairs Committee of this House has done some admirable work looking at the role of auditors but now we need action.
	I do not believe that the auditors who signed off those bank accounts could have been entirely sanguine about what they were doing. They must have been aware of the perilous exposures that were building up, not just in derivatives but in loan books which were loaded with extraordinarily generous loans made against a ragbag of properties and businesses. Some of those still sit on the books at valuations which might be deemed "optimistic" at the very least. Yet such is the narrow interpretation placed on the duty of auditors that they were able to give those banks what is seen as a clean bill of health just as disaster was about to fall. Shareholders took comfort from those audit reports, only to see their investments shattered. The Economic Affairs Committee concluded that while the auditors may have carried out their duties properly in the strict legal sense, they had not in the wider sense, and that wider sense is surely crucial.
	This amendment would change the requirement of an audit report for banks. It may be that other sectors would benefit from such a change but this is the Financial Services Bill and, as we have learnt, banks are not as other businesses. The amendment would require auditors to provide a narrative report on the risks they perceive in the bank they have audited. How different might those Lloyds and RBS reports have looked had this been the case then?
	The Minister may feel that the content of annual reports is a matter for the Financial Reporting Council but this need not always be the case. This month the FRC has launched a consultation on guidance for the audit of financial instruments. I commend it to your Lordships as an exercise in overdosing on acronyms. Whether or not it would improve the audit of financial instruments, I do not feel qualified to judge, but it will certainly take a long time to wend its way through the FRC process. The Government can and regularly have intervened through the Companies Act to determine the shape of annual reports. Only recently the Business Secretary has decided to change the way in which remuneration is reported in annual reports. If there is a belief that the demands made on auditors and banks need to be strengthened, then the Government can use this legislation and provide the change that is required.
	I have no illusions that asking auditors to report on perceived risks will go down well with everyone in the profession but some would welcome the wider remit. They would have to exercise judgment over what constituted genuine risks and they would be doing a service to shareholders as well as the wider community. Those familiar with company prospectuses will know that the list of risk factors can be comprehensive, bordering on the ludicrous, but it is not beyond the auditing profession, perhaps working with the Financial Reporting Council, to come up with ground rules that would make this a useful exercise. If all banks had to have such a narrative report, it would give auditors the opportunity to do their job properly. It would stop them being prone to any bullying tactics from executives. It would give shareholders and the community a better picture of what is truly going on in their financial institutions. I beg to move.

Lord Lawson of Blaby: My Lords, I would like to support very strongly the amendment moved by my noble friend Lady Wheatcroft. I shall speak briefly but my brevity does not indicate that this is not an important issue. It is a very important issue indeed. We are debating in the shadow of the worst banking crisis of our lifetimes and possibly the worst banking crisis there has ever been. As my noble friend pointed out, the Economic Affairs Committee of this House produced a report called Auditors: Market Concentration and Their Role which was published in March 2011. It was extremely critical and rightly critical of auditors in the context of the banking collapse that we have seen. This was, as is common with reports of Select Committees of this House, a unanimous report, but unanimity can be got in various different ways. This was unanimity where everybody of all parties who sat on that committee and heard the evidence was totally committed to what the report said. My noble friend Lady Wheatcroft mentioned one thing from the report. Let me quote one other thing from paragraph 204. It states:
	"There was no single cause of the banking meltdown of 2008-09. First and foremost, the banks have themselves to blame. ... But we conclude that the complacency of bank auditors was a significant contributory factor".
	This has to be addressed. How will we prevent-as far as we can-this sort of thing happening again?
	In discussion of an earlier amendment, the noble Lord, Lord McFall, referred to the banking commission of which I, too, am a member. It is quite possible, such is the importance of this, that the banking commission will decide to look into the question of bank audits and auditors, and indeed auditing standards and IFRS, which leave a lot to be desired and are probably a step in the wrong direction. However, we must do what we can in the Bill to rectify the position.
	I say en passant that what concerned me a great deal when the big four auditors gave evidence to us was the extent to which they seemed to think that they had simply to satisfy the management of the banks at the time, when under law their duty was to the shareholders. Furthermore, the putting in place of a proper system of audit for business and industry as a whole, but particularly for the banks, is a public duty; auditors had a duty to the wider public to do a good job, quite apart from their duty to shareholders of the banks-and they failed lamentably.
	What can we do about this? I do not think that my noble friend Lady Wheatcroft would say that her amendment is the complete answer. Of course it is not: a lot more has to be done. However, it is very important that the Bill addresses this question, and I believe very firmly that the amendment before the House tonight is an important part of the answer, even though it is not the whole answer. I strongly support my noble friend's amendment.

Lord Oakeshott of Seagrove Bay: My Lords, I, too, am delighted to support the amendment moved by my noble friend Lady Wheatcroft. With her characteristic delicacy and discretion, she did not mention the name of the auditors in question-but I will. I believe that Deloitte has very serious questions still to answer about its audit of RBS, particularly towards the end. There were some unhealthily close relationships between Deloitte's auditors and the senior management of RBS. I also believe that PWC has very serious questions to answer about its final audit of Northern Rock before it went bust. I am sure that the Minister will remember that in this House, I moved an amendment calling for a special audit of Northern Rock, organised by the Bank of England. The amendment was agreed, but not approved in the other place. My noble friend has put her finger on a very important question and I very much hope that the Government will take it seriously.

Lord Flight: My Lords, I, too, strongly support the amendment moved by my noble friend Lady Wheatcroft. The first point I will stress concerns IFRS, which hugely exaggerated bank profits and hence capital in good times, and has done the reverse in bad times. IFRS has contributed substantially to the destruction of our pension schemes by discounting liabilities at inappropriate interest rates. There have been complaints about IFRS from many quarters. Accounts have been rendered almost impenetrable. Fund managers frequently have to rewrite the accounts of companies they examine in order to make an assessment of the trading state of the business.
	I have consistently complained about this subject, but nothing has happened. Who is responsible? When I was shadow Chief Secretary, the point was made to me that it was the job not of Parliament but of the profession to dictate standards. That is entirely wrong. In the USA the political representative bodies have rightly taken up such issues, and it is the duty of both Houses of Parliament to do the same.

Lord Marlesford: My Lords, I will add my voice to support very strongly the amendment of my noble friend Lady Wheatcroft. I will do it in a short and simple way, by giving a reason and an example. The reason is that a very important function of auditors concerns hazards, and it falls into three parts. First, they must identify hazards; secondly, assess them; and thirdly, expose them.
	My example comes from something that I have agitated about for a long while: namely, the level of credit card debt in this country. This is not the credit card debt that noble Lords may have, and which they pay off monthly, but that part of the debt that overruns and is therefore subject to very high interest rates, which very often the people with the debt have no hope of paying back. That level of credit card debt for the British banks is currently still more than £50 billion. The figures are from the British Bankers' Association and the Bank of England, which both publish a series of monthly figures.
	I have mentioned this over a long while in your Lordships' House. When the previous Government were in power, at my instigation the noble Lord, Lord Myners, who as Treasury Minister fulfilled the role that my noble friend Lord Sassoon now fulfils, wrote to the chief executives or chairmen of the major banks, asking them for details of their credit card debt. The crucial question is: at what value do the banks hold this credit card debt on their balance sheets? Unless they have written it down hugely, the debt is unlikely to be paid and could be a serious hazard to the sustainability, liquidity and indeed continuing existence of those banks. This is the sort of thing that a narrative account by auditors would identify and reveal. I ask the Minister to refer to this example when he replies to my noble friend's amendment.

Lord Tunnicliffe: My Lords, I will not take up the time of the House with detailed comments on the amendment. We have listened to the debate, and all noble Lords who spoke were most persuasive. I hope that the Minister will give careful consideration to their points. We will certainly listen with great care as we decide on the extent to which we may support the noble Baroness, Lady Wheatcroft, if she plans to take the matter further.

Lord Sassoon: My Lords, the question of the audit of banks is indeed an important one, and one which has recurred in policy debates over the past 20 years. I looked back to see what the Banking Act 1987 had to say on the topic and what Lord Justice Bingham had to say when he looked into the BCCI collapse. Various changes were made at that time and since in FiSMA but it is important that we learn lessons from the recent banking disasters, and I address the particularities of this amendment from a position of agreeing with the considerable concern around this issue. However, I do not believe that the amendment before us completely achieves what we are trying to do.
	Clearly auditors are uniquely placed to identify and flag to the PRA current and potential risks in a firm. We would also expect the PRA to share relevant information with auditors, for example where it views a firm's approach to asset valuation or provisioning to be significantly out of line with its peers. It is worth pointing out that there are areas in which the present regulator, the FSA, believes that auditors should be looking at particular issues and reporting on them and it can require that to be done in rules under Part 22 of FiSMA. So, for example, under the client asset rules, auditors are required to report on whether investment firms have properly segregated their client assets.
	I do however have some difficulty with this particular amendment. My noble friend Lady Wheatcroft says that if only provision like this had been in place before or at the time of the crisis the auditors might have given a lot more help which might have prevented some of the disasters. On the other hand my noble friend Lord Lawson of Blaby quotes from your Lordships' committee's report which talks of the complacency of bank auditors at the time. Taking as read for the moment that the complacency thesis is the right one, I wonder if that complacency would have run through what was required to be done under a particular provision like this one in the amendment. I think that we are on to something important here but I am not convinced that this quite hits the sweet spot that the Committee is aiming for and that requiring auditors to provide this general narrative report will achieve what we want. Risk assessment is a highly-specialised process and it goes to the heart of the job of the prudential regulator. What I think we want of auditors is to see if there is something more that they can do which supports the prudential judgment rather than cuts across it.

Lord Lawson of Blaby: I am most grateful to my noble friend. Of course this is not the whole answer; I made that clear in my remarks. However, does he not think that this amendment would have been helpful and that it is therefore worthy of support from the Government?

Lord Sassoon: For the reasons that I have given, I am not absolutely convinced that it would have been helpful against the background of complacency of the bank auditors at the time of the crisis. Having said that, I agree with the Committee that there is something here that we need to look at further, so I want to see whether the Bill can and should go further to require the regulator to make the most of the expertise that auditors can undoubtedly offer. I am happy to take this issue away and consider whether there is an amendment that I can bring back at Report that recognises the important role of auditors without cutting across the role of the regulator in the way that I believe this particular amendment may do. I will look at it and come back to the House with something that addresses this area. On that basis I hope-

Lord Oakeshott of Seagrove Bay: It sounds as though the Minister is encouraging the regulator to ask the auditors more questions. If we have complacent auditors, surely it is even more important that they sign something, that their complacency is questioned and that they take more responsibility for their work.

Lord Sassoon: I certainly agree that if we can get more value out of the auditors we should do so. It should be on the basis of something that helps people-I am not sure whether that is the regulator or directly the public-towards a better understanding of the risks embedded in bank accounts. On that basis, as I say, I will take the issue away. I ask my noble friend to withdraw her amendment, which would, of course-I should say for the benefit of my noble friend Lord Marlesford, who asked me to mention credit card debt-wrap up credit card debt and many other things if we can get this right.

Baroness Wheatcroft: I thank the Minister for his reply and for his willingness to at least consider this issue. Like my noble friend Lord Lawson, I do not see this as a total answer to the huge problem. However, I ask the Minister to consider whether the complacency of auditors might have been due to the fact that so little was required of them, and thus requiring rather more might be a step in the right direction. I look forward to hearing what he comes forward with and, if it is not very much, reserve the right to push this a little further. I beg leave to withdraw the amendment.
	Amendment 188 withdrawn.
	Clause 39 agreed.
	Schedule 13 agreed.
	Clause 40 : Provisions about consumer protection and competition
	Amendment 188A
	 Tabled by Baroness Hayter of Kentish Town
	188A: Clause 40, page 124, line 33, at end insert-
	"( ) A designated consumer body may make a complaint to the PRA that a feature, or combination of features, of the market for with-profits insurance policies is, or appears to be, significantly damaging the interests of consumers."

Baroness Hayter of Kentish Town: My Lords, in previous debates on the Bill we strongly welcomed the super-complaints process included in Clause 40. Particularly in a market such as this, it is important that independent consumer bodies, expert in intelligence-gathering and in touch with clients, can bring a complaint about something which is causing general consumer detriment.
	However, it is not only the FCA which will regulate issues with the potential to cause consumer detriment. The PRA, via its role over with-profits policies and bank-lending ratios, might also be the regulator to intervene in particular cases of market failure. We are therefore asking that in such cases the super-complaint can be made to the PRA where appropriate. There are 25 million customers in this market, with some £330 billion of with-profits policies, so we are talking about significant consumer questions. The Bill transfers responsibility for these to the Prudential Regulatory Authority but without giving consumer bodies the ability to call conduct issues to account via a super- complaint. Why should the voices of consumers not be properly heard given the size of the market and the chequered history of some of those policies and, indeed, regulatory failures?
	In the other place, the then Minister, Mark Hoban, agreed that,
	"the super-complaints power should be wide enough to cover complaints about with-profit policies",
	although he did not agree that,
	"the PRA should be designated as a recipient of the super-complaints".-[Official Report, Commons, Financial Services Bill Committee, 15/3/12; col. 519.]
	He seemed to think that such super-complaints should be taken to the FCA, even though it had no responsibility in this area. Despite reading that exchange and what he said very carefully, I do not understand how a complaint to one body could affect the regulatory actions of another, no matter how good the dialogue or the MoU between the two. Therefore, we again ask that, for with-profits insurance policies, the super-complaint should be made to the PRA.
	On the amendment in the name of the noble Lord, Lord Flight, in this group, we would not want to see the FCA lose this power and are content with the way it is set out in the Bill. I beg to move.

Lord Flight: My Lords, I shall not move Amendment 189A. I am now satisfied that the powers here do not contradict or are not repeated by powers under Section 404 and that the potential arrangements of the ombudsman's power to refer to the FCA are quite helpful. Similarly, I shall not move Amendment 189B.

Lord Newby: My Lords, this group is now slightly confusing in that more amendments will not be moved than have been moved. However, I shall do my best to speak to the one that has been moved, but if I find myself speaking to one which will not be moved, no doubt someone will tell me.
	On Amendment 188A, which would enable super-complaints to be made to the PRA about the with-profits market, the Government recognise the thrust of the argument that the Bill is drafted so as to give the sole responsibility to the PRA at the moment. However, in the light of our earlier debate about "with profits"-in particular, the points raised by the noble Baroness, Lady Drake-the Government committed to giving further consideration to this matter. I can confirm that the Government intend to amend the Bill on Report to enhance the role of the FCA in "with profits" regulation, in a way that I hope will meet the noble Baroness's concerns. We will write shortly to the noble Baroness, Lady Drake, on this point and I will of course copy the letter to interested Peers. This may be the first absolutely firm concession that we have made this evening, and I am delighted to be able to do it.
	Amendment 188B seeks to ensure that designated consumer bodies are "independent and impartial". I note that the Enterprise Act framework on which the FCA super-complaints are consciously based takes a similar approach. I can offer the noble Baroness, Lady Hayter, some assurance that the first of the draft criteria that we will publish for consultation requires that designated consumer bodies can be expected to act "independently, impartially and with complete integrity". I hope that this offers her the assurance she is seeking.
	I think that Amendments 189A and 189B are not going to be moved.

Baroness Hayter of Kentish Town: Perhaps we can suggest that the noble Lord, Lord Newby, answers all the amendments. We seem to have slightly more success with him than with his colleague on the Front Bench. Obviously, I am delighted by that assurance and we look forward to seeing exactly how the Bill will do that, but it sounds as though it will meet our aim. With that in mind, I beg leave to withdraw the amendment.
	Amendment 188A withdrawn.
	Amendments 188B to 189B not moved.
	Amendment 189BZA
	 Moved by Baroness Hayter of Kentish Town
	189BZA: Clause 40, page 127, line 25, leave out from beginning to end of line 5 on page 128, and insert-
	"234H Power of FCA to make request to Competition Commission
	The FCA may, subject to subsection (4) of section 131 of the Enterprise Act 2002, make a reference to the Commission if the FCA has reasonable grounds for suspecting that any feature, or combination of features, of a market for financial services in the United Kingdom prevents, restricts or distorts competition in connection with the supply or acquisition of any financial services in the United Kingdom or a part of the United Kingdom."

Baroness Hayter of Kentish Town: My Lords, I should like to know which Minister is going to respond to this-it may help.
	We are pleased that the FCA now has a new competition objective and wider competition powers. However, these powers do not go far enough to enable the FCA to deliver its objectives. As the Bill stands, the FCA will still have to refer cases to the OFT, or its successor body, which will then conduct a market analysis before being able to take further action. This looks like a slow and rather unfair regulatory process, even after the merger of organisations that will take place under another Bill.
	We therefore support the view of the Joint Committee that the FCA should have concurrent competition powers in respect of a market investigation reference, together with the OFT. That would empower the FCA to conduct its own economic analysis and deal with distortions in the market without the need for any delay.
	We have heard a lot about the lessons learned from PPI, which highlight the need for the FCA to have the market investigation reference powers. In 2005, the FSA signalled its concerns about the PPI market and began an investigation. After the investigation, the FSA took its concerns to the OFT, which had to look at the issues before passing the case on to the Competition Commission. Eventually the Competition Commission passed the issue back to the FSA. The process took far longer than necessary and allowed the banks and other credit providers to continue selling PPI to their unsuspecting customers.
	Giving the FCA concurrent MIR powers would allow the FCA to escalate concerns about competition failures quickly and efficiently, with any failures addressed before consumer detriment crystallised. By giving the FCA powers equivalent to the OFT under Section 131 of the Enterprise Act 2002, a single organisation would be able to tackle significant market issues such as PPI without the substantial delay through referral to another body. We therefore seek to amend the Bill accordingly and I beg to move.

Lord Whitty: My Lords, since my noble friend is a bit lonely on the Front Bench just now, I intervene very briefly to support her on this. Quite often in regulatory structures the sector regulator is very nervous of referring anything to the competition authorities because it regards that as part of its failure. Under the terms of this amendment, it would be part of the process that was available-I will not say normally, but if necessary-to the FCA to refer things to the competition authority, having itself examined the structure of the market with its concurrent powers.
	I am very mindful of an equivalent sector-namely, energy-where one of the problems has been that Ofgem has always refused in effect to refer the structure of the energy market to the competition authorities, even though, I happen to know, at the time the competition authorities or the members of the Competition Commission were very anxious to look at it. We might have to change the form of words slightly but I think this is the better formulation-that the FCA has concurrent powers but that it is not seen as a complete departure for a case to be referred to the competition authorities themselves and that the process is not prolonged.

Lord Sassoon: My Lords, I can see that the noble Baroness is delighted that I am on my feet. I listened to the very clear and detailed arguments that the noble Baroness, Lady Drake, gave in an earlier session, to which we have come back today. I may not always respond there and then but I listen very carefully to everything that is said. However, I do not want to raise the expectations of the noble Baroness on this one.
	This amendment seeks, as we have heard, to give the FCA a power to make a market investigation reference to the Competition Commission. I am sure that the Committee is aware that the Joint Committee that scrutinised the draft Bill recommended that the FCA should be given concurrent market investigation reference powers. However, noble Lords will also be aware that the Treasury Select Committee, in its report on the FCA, concluded that the case for the FCA to have market investigation reference powers has not yet been made, and that the issue should be reviewed when the FCA has bedded into its new role.
	Having considered the matter very carefully, the Government have adopted the proposal of the Treasury Select Committee. The FCA's competition objective will require it to keep the markets it regulates under review and it may of course perform its own competition analyses as part of that. The evidence-gathering and analysis carried out by the FCA will support any subsequent intervention by the OFT. For example, on a referral from the FCA, the OFT may have sufficient evidence to launch a market investigation reference almost immediately. There is precedent for this in the OFT's response to the report of the House of Lords Economic Affairs Committee on the audit market. In the light of the evidence collected by the committee, the OFT felt able to consult on a reference to the Competition Commission without conducting its own market study.
	As the Government have made clear in their response to the Treasury Select Committee, we will review the question of the FCA competition powers when it has bedded in to its new role, five years after it comes into being. I hope that with that reassurance, and confirmation that we are following the Treasury Select Committee's recommendation, the noble Baroness will feel able to withdraw her amendment.

Baroness Hayter of Kentish Town: My Lords, I thank my noble friend Lord Whitty for his support for the amendment. His experience in this field is much greater than mine. I am surprised by the Government's lack of interest in the relationship between the OFT and the FCA, given its new competition powers. In an earlier debate, the Government would not even agree to an MoU between the FCA and the OFT. I am pleased that the Government will keep the matter under review and therefore accept that there are some issues here. Part of the concern is that, with the merger under the other Bill of the OFT with the Competition Commission, those organisations, as all organisations are when they get together, will be tied up with working that out just at a moment when the FCA has these new competition powers and perhaps would like to use them in the way described. I beg leave to withdraw the amendment.
	Amendment 189BZA withdrawn.
	Amendment 189BA
	 Moved by Lord Whitty
	189BA: Clause 40, page 128, line 5, at end insert-
	"Collective proceedings
	234J Collective proceedings and collective redress
	(1) In respect of claims to the courts covering a significant number of consumers with equivalent or near equivalent interests or complaints, the following procedures will apply.
	(2) The court may, on the application of a person ("the representative"), by order authorise the representative to bring collective proceedings before the court in respect of financial services claims of a kind specified in the order.
	(3) "Collective proceedings" means proceedings brought by the representative on behalf of persons who are entitled to bring (or have brought) proceedings in respect of the specified kind of claim.
	(4) "Collective proceedings order" means an order under subsection (2).
	(5) A collective proceedings order may be made only if it appears to the court that the specified kind of claims raise the same, similar or related issues of fact or law.
	(6) A person may be authorised under subsection (2) to bring proceedings even if the person would not otherwise be regarded as having any interest, or any sufficient interest, in the proceedings.
	(7) Proceedings may be authorised under subsection (2) even if each represented person does not have a claim of the specified kind against all of the defendants to the proceedings."

Lord Whitty: My Lords, I shall also refer to Amendment 189BB. Both amendments make up two pages of amendment to an already massive Bill, but the text should be familiar to some of the Minister's officials in the Treasury, for reasons that I shall explain in a moment.
	The Bill, by way of a pretty radical restructuring of the regulation of the financial services, greatly enhances the power of the Bank of England. One hopes that it will greatly enhance the consumer protection power of an FCA replacing a relatively feeble FSA. It enhances some consumer powers, and it arguably also enhances the role of the consumer panel and the financial services ombudsman, but it does nothing to enhance the position and powers of consumers.
	The amendments suggest that we should move to a system of collective redress when the misdemeanour, or illegality sometimes, of the financial institutions involves a large number of people. The amendments would provide for the Secretary of State for the Treasury to come forward with regulations allowing for collective redress procedures.
	We have had a number of such issues over the years, from mis-selling through to PPI, which has been debated substantially today and during other consideration of this Bill. Those issues involve a range of problems and a very large number of people. We know that the inability of individual consumers to get redress is difficult. We know that it also creates the kind of confusion to which my noble friend Lord Kennedy of Southwark referred just now, with intervening bodies and claims management companies confusing rather than enhancing the position for the individual consumer. Whether tens or thousands of people are involved, a more collective approach would sometimes be desirable. The PPI scandal, for example, could probably have been largely resolved by now for the vast majority of potential claimants. Instead, we are getting a "fishing trip" from the CMCs, and a huge number of claims will take years to settle and involve the banks, the intermediary companies and the courts in time, effort and cost.
	The issue of collective redress in consumer matters has a considerable history. It is true that all consumer bodies have agitated under successive Governments to provide for a general system. The last Government and previous Governments were resistant to a general power. However, in the wake of the financial collapse and financial scandals, it was recognised by the last Government and many around this issue that some provision was necessary on the financial side. Indeed, the Bill that was produced in 2009-10, which became the Financial Services Act, included in its original form whole sections on collective redress-Clauses 20 and onwards of that Bill. They were considered in part very briefly by the House of Commons. They were not rejected by that House; there was actually support for those provisions at Second Reading from those on all Benches. Of course, they ended up being dropped by the advent of the general election in 2010 and the rather peculiar Byzantine proceedings that we call in constitutional jargon "wash-up", and disappeared. I particularly objected to them disappearing, but by then it was too late.
	These are in effect the self-same provisions that were seen by the Treasury and the FSA at the time as necessary. Nothing has occurred since to suggest that they are no longer necessary. They are written in the language of the parliamentary counsel and obviously backed by the Treasury's lawyers. The Minister can no doubt tell me whether they are in quite the right place in this Bill, but it is appropriate that the Government reconsider this dimension, look at what was in the Bill at that point and reproduce it in the final version of this Bill in this form or something similar to it.
	It is a very serious omission in this Bill, which otherwise provides for a total restructuring of financial regulation, that no leverage is given directly to consumers to act collectively. It is an omission that could easily be put right. I would hope that the Minister in his present mode of conciliation-the noble Lord, Lord Newby, will probably reply, so I am even more confident-will recognise that this would be a major improvement to the Bill and one that would avoid the cost, complexity and time-wasting of dealing with issues that affect so many consumers, both individual and business. It would ensure that a lot of that complexity was cut out and that we would not go on for years over a single issue that actually had multiple dimensions but in cases that were in essence the same.
	I hope therefore that in principle the Minister can accept the insertion of these clauses into the Bill or at least say that he will bring back his own version of them. I am looking forward to such a recommendation from the Minister. If he feels that he cannot go that far at this stage, he also has my noble friend Lady Hayter's amendment in this group, which says that the new authorities should look at the provision for collective redress and deliver it within three months. I would be very happy to go along with that, but certainly accepting the principle of providing consumers in these circumstances with a collective redress system-one that did not have to be invented every time there was a new scandal-would be extremely helpful. It would help to redress the balance and complexity faced by many consumers at the moment, such as in the PPI scandal. I beg to move.

Baroness Hayter of Kentish Town: My Lords, in addition to all the comments made by my noble friend Lord Whitty, which we obviously support, I would like to speak for a few moments to Amendment 189BC, which stands in my name. Had that been in place, it would also have provided a route for small firms that were sold totally unsuitable interest rate swaps to have reached a speedy cross-industry solution.
	The committee will know that many SMEs took out loan agreements, having been told that they also needed to take out an interest rate swap. Those SMEs, usually with no professional legal or accountancy staff, are sitting targets for financial services companies out to make a fast buck. They need the protection that this amendment could provide. I hope that the Minister will accept it, or a suitable alternative, to ensure that small and medium-sized companies, on whom we all depend to kick start our economy, get easy access to complaint resolution where their interests are damaged.
	The amendment would give small firms the ability to complain and bring proceedings-court proceedings if necessary-to ensure that they could get proper adjudication on whether they were indeed mis-sold a particular product. As we have heard, the amendment would require the Government to introduce proposals within three months of Royal Assent to make it easier for groups of small firms to bring collective proceedings before the courts in respect of financial services claims, with the right to opt out for companies not wanting to be party to the outcome of the cases.
	The amendment would also empower SMEs to complain to the regulators and to give their representative bodies the right to complain about market failures to the FCA, in the same way in which individual consumers can.
	There is a gap in the legislation for small firms wanting to make complaints in their role as consumers of financial products. A case can be made for the representative bodies of small firms being able to take civil complaints. On 22 May this year, the Minister in the Commons, Mr Hoban, said that,
	"the provisions in the Bill will not prevent bodies representing small and medium-sized enterprises which fit the relevant definition of consumers from making super-complaints".
	We therefore seek clarity in the Bill to that effect through the amendment.
	Mr Hoban also said that:
	"what type of consumer body should have access to super-complaints is complex and will require more detailed criteria than can be set out in the Bill."-[Official Report, Commons, 15/10/12; col. 1031.]
	He announced that the Treasury would publish draft criteria "later in the year".
	I might have missed it, but it is now later in the year and I think it is yet to appear. Perhaps the Minister could provide those further details.

Lord Newby: The Government believe that collective proceedings, in the appropriate circumstances, can deliver access to redress and a potential deterrent effect. That is why the Government have been consulting on a range of proposals to make it easier for consumers and small businesses to bring private actions in competition law-including whether to extend to businesses the current right of consumers to bring a collective action following a breach of competition law, and whether to make it easier to bring such actions. The Government are considering the consultation responses and hope to publish their response before the end of the year. We want to take the opportunity to learn from the outcome of that consultation and reflect on the implications for the financial services sector before proceeding to legislation.
	The noble Baroness may say that her amendment would provide adequate time for consultation. However, her amendment specifies that small businesses should be able to bring collective proceedings on an opt-out basis. The type of persons who might bring collective actions, whether on an opt-in or opt-out basis, are substantive questions on which BIS has been consulting. We think that it is a lot better to await the outcome of the BIS consultation and reflect on the implications for financial services than to seek to pre-empt that process and require a particular model now. If the Government were to conclude from this exercise that it would be appropriate to bring forward legislation on collective proceedings for the financial services sector, any proposals should then be subject to proper consultation.
	As an addendum to the second part of Amendment 189BC, I note that the Bill would not prevent bodies representing small and medium-sized enterprises that fit the relevant definition of "consumers" from making super-complaints. As was explained in another place, the issue of what type of consumer body should have access to super-complaints is complex and will require more detailed criteria than can be set out in the Bill.
	We have considered this matter carefully, and I can inform the House that the consultation document that the Government will shortly publish covering this issue will include the proposal that the Treasury should be able to designate bodies that primarily represent the interests of small to medium-sized enterprises as super-complainants and that this will be reflected in the draft criteria.
	I hope that, with the reassurance that the Government will consider proposals on collective proceedings carefully and that they will shortly consult on allowing SME representatives to make super-complaints, the noble Lord and the noble Baroness will feel able to withdraw their amendments.

Lord Whitty: My Lords, I was aware and was of course pleased that BIS is once again consulting on this issue. Given the way in which these amendments are framed, the Bill would simply say that the Treasury had the power to bring forward regulations for collective procedures and collective redress on an opt-in or opt-out basis. They do not specify more than that. They do not, unlike my noble friend's amendment, actually specify a timescale. Having this in this Act would therefore allow the considerations arising from the more general consultation to be tailored to the financial services arrangements without any new primary legislation. I would therefore have thought the Minister would welcome that.
	In the discussions in the run-up to the Financial Services Bill in 2010-noble Lords do not often hear me say this-the Treasury was much more progressive on these issues than was BIS. Of course, we are under new management now and maybe that has changed. There are some very special situations in the financial services sector, and we do not want to wait for another PPI, another pension mis-selling, another sub-prime mortgage crisis or whatever where we have to construct from scratch a new system to protect consumers, both business and individual.
	These amendments would allow the Minister to do that, after the general consultation if necessary, so I do not accept the argument that we have to wait for that consultation before they are included here. It is clear to me and, I think, to a lot of people that the financial sector needs such provisions, and I would not like to be in a position 18 months down the line where we had to go back to a new form of primary legislation in order to provide them. I therefore advise the Minister to have another look at these amendments, but for the moment I shall withdraw my amendment.
	Amendment 189BA withdrawn.
	Amendments 189BB and 189BC not moved.
	Clause 40 and 41 agreed.
	Schedule 14 : Amendments of Part 24 of FSMA 2000: insolvency
	Amendments 189BD to 189BL
	 Moved by Lord Sassoon
	189BD: Schedule 14, page 263, line 8, before "the appropriate" insert "or recognised investment exchange,"
	189BE: Schedule 14, page 264, line 6, at end insert-
	"(1A) In subsections (1), (2) and (6), after "authorised person" insert "or recognised investment exchange"."
	189BF: Schedule 14, page 264, line 24, at end insert ", and
	(b) in paragraph (a), after "authorised person" insert "or recognised investment exchange"."
	189BG: Schedule 14, page 265, line 12, at end insert ", and
	(b) in paragraph (a), after "authorised person" insert "or recognised investment exchange"."
	189BH: Schedule 14, page 266, line 17, at end insert-
	"(1A) In subsection (1)(a), after "authorised person" insert "or recognised investment exchange"."
	189BJ: Schedule 14, page 266, line 37, at end insert-
	"(1A) In subsection (1)(b), after "authorised person" insert "or recognised investment exchange"."
	189BK: Schedule 14, page 267, line 20, at end insert ", and
	(b) in paragraph (a), after "authorised person" insert "or recognised investment exchange"."
	189BL: Schedule 14, page 269, line 19, at end insert "and
	(b) in paragraph (a), after "authorised person" insert "or recognised investment exchange"."
	Amendments 189BD to 189BL agreed.
	Schedule 14, as amended, agreed.
	Clause 42 agreed.
	Schedule 15 : The consumer financial education body
	Amendment 189C
	 Moved by Lord Sassoon
	189C: Schedule 15, page 272, line 2, at end insert-
	"In paragraph 3 (status), in sub-paragraph (2), omit "board members,"."
	Amendment 189C agreed.
	Amendment 190
	 Moved by Baroness Noakes
	190: Schedule 15, page 272, line 4, at end insert-
	"Omit paragraph 5."

Baroness Noakes: Like the noble Lord, Lord Whitty, I, too, am fighting one of the battles left over from the Financial Services Act of 2010. As the Committee will find out, mine is a very much more modest affair.
	I shall move Amendment 190, which is a probing amendment to Schedule 15 to this Bill. This schedule makes a number of amendments to the law governing the consumer financial education body which likes to go by the name of Money Advice Service. This body was created by the 2010 Act. As noble Lords who were involved in that Bill will be aware, it received little detailed scrutiny in your Lordships' House and was eventually passed into law, as the noble Lord, Lord Whitty, said, under the wash-up procedure and the Bill ended up in somewhat truncated form. The provisions relating to Money Advice Service received no scrutiny whatever in your Lordships' House. My noble friends and I had tabled 40 amendments at the time, all of which went undebated. I said when we did the final wash-up procedure that I hoped that if we formed the Government after the general election, we would revisit these remaining unsatisfactory aspects of Money Advice Service. Of course, other more pressing issues faced the Government in 2010 and going back over legislation creating minor public bodies was clearly never going to be a priority. However, as we have the opportunity of this Bill before us, I have decided to raise just one of the 40 issues that I wished to explore in April 2010.
	The model set up in what is now paragraph 4 of Schedule 1A to FiSMA is that Money Advice Service can discharge its functions, inter alia, by arranging for other people to do things for it. Paragraph 5 goes on to say that if Money Advice Service makes such an arrangement with another person, including one established by statute, that person,
	"may do that thing despite any limitation on its capacity (whether under a rule of law or otherwise) which, but for this paragraph, would have applied".
	That seemed to me to allow Acts of Parliament or the governing instruments of companies or charities to be overridden at the will of an unelected quango. If that is the case, I suggest that the paragraph is unconstitutional. It may be quite worse than the Henry VIII clauses to which we customarily object, because Henry VIII clauses at least give powers to Governments who are democratically elected and accountable.
	The effect of my amendment-which, as I have said, is a probing amendment-is to remove paragraph 5. It would still be possible for Money Advice Service to work through other bodies, but only if those bodies were not constrained by some kind of legal impediment, which paragraph 5 seems to do away with. My amendment is really designed to find out what limits, if any, exist around paragraph 5. Is it the case that if Parliament sets up a public body, or a quango to carry out a specific activity, that body can do what it likes with Money Advice Service whatever the governing legislation says? Is it the case that if a charity is set up with specific aims-for example, animal welfare-it can divert onto working with Money Advice Service with no further ado? Is it the case that if a company was set up to explore for and extract oil, say, it could choose to do work with Money Advice Service without any reference to shareholders? I may well have misunderstood the way in which paragraph 5 operates. It may well not be unconstitutional, as it appears to be on the face of it. I look forward to hearing what my noble friend the Minister has to say and I beg to move.

Lord Newby: My Lords, I hope that I can reassure my noble friend. As she says, this amendment removes the provision that specifically aims to allow organisations that wish to act on Money Advice Service's behalf to do so, even if there is otherwise a limitation on their ability to do this. This is to enable bodies such as charities, credit unions or friendly societies to work with MAS without constraints imposed by, for example, tightly specified charitable objectives. This provision, as my noble friend pointed out, was inserted into FiSMA by the Financial Services Act 2010. I vaguely remember her tabling amendments on that point when the Bill that became that Act was being considered by this House but, as she said, there was insufficient time to debate them during the wash-up.
	I think that I can put my noble friend's mind at rest relatively straightforwardly: there is a direct precedent for what is being proposed here in relation to the National Lottery. National Lottery distributors encountered similar difficulties working with particular bodies whose constitution was narrowly drawn. Accordingly, amendment was made to the National Lottery Act 1993, in Section 25A, to permit charities and similar bodies to act on behalf of the distributor. A similar provision was included in paragraph 7 of Schedule 3 to the Dormant Bank and Building Society Accounts Act 2008. An example of the circumstances in which such a power might be used is where a charity's objects may be wholly in sympathy with Money Advice Service's objectives, but when read narrowly the objects are narrower than a particular project on which Money Advice Service wishes to work with the body. This provision lifts that constraint and, given the active interest of a large number of charities in the financial capability agenda, I hope that the noble Baroness would not wish such organisations to be prevented from working with Money Advice Service in future. Having received this explanation, I hope that my noble friend will feel able to withdraw the amendment.

Baroness Noakes: My Lords, that explanation has left me as concerned as I was to begin with. While his examples seek some sort of plausible minor extension of a body's activities, paragraph 5 is not confined to minor changes to a body's constitution and it is not confined even to charities whose objectives are related those of Money Advice Service. It is very broad indeed and would apply under a very much broader basis, including to a large number of bodies set up by statute. I shall consider carefully what my noble friend has said and look at the precedents that he has offered as justification for this, but I have to say that I am not entirely happy with his explanation. I beg leave to withdraw.
	Amendment 190 withdrawn.
	Schedule 15, as amended, agreed.
	Clause 43 agreed.
	Schedule 16 agreed.
	Clauses 44 to 46 agreed.
	Clause 47 : Mutual societies: power to transfer functions
	Amendment 190ZZA
	 Moved by Lord Stevenson of Balmacara
	190ZZA: Clause 47, page 131, line 7, at end insert-
	"( ) making provision for the increased diversity of the financial services sector and promotion of mutual societies, including arrangements to measure the number of members of mutual societies, and the market share for mutual societies as a proportion of the UK financial services sector."

Lord Stevenson of Balmacara: My Lords, I shall speak also to Amendments 190ZZB, 190ZZC and 190ZCA. Mutual and building societies and the friendly society sector have played an important part in the organisation of savings and investments and the provision of credit in this country for centuries. Their existence, against all the odds on some occasions, has sometimes been a close-run thing and their constitutions and management structures are redolent of an earlier age of prudence and sobriety in financial matters. Many people regret that we do not do more to support this sector. There have been reports and initiatives aplenty in recent years, but not too much action. I am sure that all noble Lords will share our concern that the Bill should not disadvantage these important organisations.
	Our amendments therefore have three purposes. The first is to invite the Minister to update us on the question raised in another place about the need to modernise the register of these bodies. As was indicated during the Committee stage debates, credit must be given to the FSA for bringing the registry out of the 19th century and into its present form, but unlike Companies House, where all filings can be done online, at the Registry of Friendly Societies, located at the FSA, it still takes 48 hours to get a search of certain records of a mutual society. In comparison, a search at Companies House is a simple process which takes minutes, if not seconds. Mutual societies deserve a modern registry which can support and promote the mutual society model. The amendments would provide for any function of the FSA in respect of the Registry of Friendly Societies to be transferred to a register established at Companies House, though, of course, we would be happy if the location of the registry could be unchanged. If the Minister could confirm that a modern registry can be established within the FCA, that would satisfy us.
	Secondly, this part of the Bill empowers the Treasury to amend by order legislation on mutual societies for a number of different purposes. When this was raised in the other place the issue seemed to be whether the FCA and PRA responsibilities for the functions that we are discussing are broadly the same as those for the plc sector and that there are no anomalies for the mutual sector as opposed to the non-mutual sector. Unfortunately, it is not clear from Hansard whether the Minister was able to clarify whether or not this was the case, so it might be useful if the Minister could outline how the clause affects the mutual sector and confirm that it is simply a technical matter with no new provisions.
	Thirdly, Clause 47 introduces provisions for credit unions in Northern Ireland. Credit unions play a very important part in the organisation of savings and the provision of credit in the Province. As I am sure the Minister is aware, some attention was paid to this issue when the matter was debated in Committee in the other place. Subsection (2)(g) lists the Credits Unions (Northern Ireland) Order 1985 as legislation that the Treasury may amend by order. As was raised in the other place, the 1985 order is specifically included in the Northern Ireland Act 1998, established by the Good Friday agreement. Again, therefore, it would be helpful if the Minister could clarify the general position, particularly that subsection (4) is purely an enabling provision that will allow the transfer of functions on an agreed and acceptable basis and will not automatically dictate such.
	I take this opportunity to invite the Minister to update us on the outcome of the consultation on the draft mutuals order, and particularly on whether it has now been agreed which matters will go to which body. The Minister will recall that the draft mutuals order talked about transfers to the FCA or the PRA as though the question of which regulator will actually step in at which moment had been left as a rather grey area. As was said when this issue was discussed in another place, surely that ambivalence suggests uncertainty as to what will happen in future, at a time when we should be encouraging the sector to have confidence and to grow. It also seems to run contrary to the commitment on page 9 of the coalition agreement, which states that the Government,
	"will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry".
	Given that we are talking about transferring responsibilities between regulators, which regulator will be the champion for the mutuals model; who will actively encourage the benefits that can flow from a non-plc corporate form; and will either of the regulators have any responsibilities for such matters or none? I beg to move.

Lord Sassoon: My Lords, the draft mutuals order has been published this evening. My officials will send the noble Lord a link to it in the morning so he can be completely up to date. That cuts through that point: the draft order confirms that the Government are moving steadily ahead with lots of action, and I will briefly remind the Committee of some of it. The order is the next thing that is due to make progress in the Government's important objective of promoting diversity. As we have discussed before, the important thing, as the noble Lord said, is that we want a level playing field. The Government do not see this Bill as the vehicle through which to promote particular sectors of the financial services industry-I think that the noble Lord understands that-but I will sketch out some of the other things that we are doing.
	To reassure the Committee why in my view Amendment 190ZZA is not necessary, the Government have demonstrated a clear commitment to promote mutuality and to diversify and strengthen the mutual sector. We are taking action to give concrete effect to this commitment, including the new requirement in the Bill for the regulators to analyse the impact of proposed rules on mutuals and building societies, so helping with the local level playing field; the protection given to members of Northern Ireland's credit unions; and legislation to reduce restrictions on the growth of credit unions. The Government are committed to ensuring that building societies continue to operate on a level playing field with banks while maintaining their unique identity-for example, in the draft Banking Reform Bill published last week, we proposed to exempt building societies entirely from the definition of a ring-fenced bank, although changes will be made to the Building Societies Act 1986 to bring it into line with the ring-fencing provisions of the draft Bill, which was the proposal supported by most respondents.
	The information requested by the amendment is easily available online, for example from the Building Societies Association's website. In this instance, placing additional burdens on the regulator and the sector through legislation is both disproportionate and unnecessary. More widely, we consider the appropriate measures of success in this area to be not only a growing mutuals sector in terms of market share or number of members, but also evidence of mutuals being competitive with their PLC counterparts, and mutuals not being subject to unfair obstacles or unfair regulatory burdens. Focusing on just these two quantitative measures of success, as this amendment does, would only tell part of the story.
	Amendments 190ZZB, 190ZZC and 190ZCA are to Part 3 of the Bill, which provides an order-making power to amend certain legislation relating to mutual societies, including Northern Ireland credit unions and industrial and provident societies. The problem with these amendments is that the registry of friendly societies does not actually exist, so there is nothing to transfer. The Government have previously considered transferring the registration of mutuals to Companies House, but decided against doing so because, in our view, the costs and legislative changes required would be much greater than the benefits, if any. Considerable legislative changes would be required to alter the status of Companies House, including giving it the necessary framework, objectives, and the ability to charge fees to mutuals. Accordingly, there would be cost implications. Currently, registration at Companies House is self-financing. It is processed electronically with the emphasis on a cheap and fast process with a high-volume turnover. In contrast, mutuals registration is manual and would require a bespoke system and a number of staff in order to accommodate this. Transferring the registration of mutuals from the FSA to the FCA retains the current mutuals expertise. The FCA would have the staff, processes, and knowledge to continue fulfilling this role.
	I am aware of the industry concerns about the ease of public access to the register to which the noble Lord draws attention. The FSA introduced online access to the public records of mutual societies in April 2011. This has made it easier to access annual returns and accounts at a lower cost than was previously possible. The FSA is also now scanning newly submitted annual returns and accounts, which currently exist in hard copy only. There is significant progress here.
	However, the FSA has not, to date, scanned all historical documents. To do so would be likely to incur a significant additional one-off cost which was recently estimated at £2.5 million by the FSA and would be paid for through levies on mutuals. It is right that the regulator should assess whether the benefit of a full transition to an electronic public record is worth potentially significant additional costs to the mutuals sector through the levy. Therefore, it is not a straightforward matter. I hope that, on that basis, the noble Lord will feel able to withdraw his amendment.
	I will talk, just quickly, about government Amendments 190ZA to 190ZD. This is a group of four minor and technical amendments to Clause 48. Currently, Clause 48 permits an order under Clause 47-an order transferring functions of the FSA under mutuals legislation to the FCA and/or the PRA-to apply provisions of FSMA to the transferred mutuals functions. For example, this will allow functions under mutuals legislation to be brought within the regulators' governance and fee structures. It will also allow FSMA objectives to be applied to non-FSMA mutuals functions. A draft of an order under Section 47, transferring the FSA's functions under mutuals legislation to the FCA and the PRA, was published on introduction of the Bill to help inform parliamentary debate. A revised draft, as I have said, will shortly be published for consultation; indeed, it is out this evening. The draft order applies the PRA's objectives to its functions under mutual legislation.
	It is possible that in future new objectives might be given to the PRA by an order made under new Section 2D of FiSMA, which provides an express power to impose additional objectives, or by an order under new Section 22A of FiSMA specifying activities as PRA-regulated activities. As drafted, Clause 48 would not permit such new objectives to be applied to the PRA's non-FiSMA mutuals functions. These four amendments will remedy that.

Lord Stevenson of Balmacara: I thank the Minister very much for his detailed explanation, particularly of the government amendments. I should like to make two points about level playing fields since that was the recurring theme. If there is a level playing field in terms of the generality of the mutual sector-I include in that the provident societies and friendly societies-there is still a problem which the Government have caused. An aspiration of the coalition agreement is that more support should be given to mutuals, yet we are saying that there must be a level playing field. I think that we would also accept that it is not the job of the regulator to pick and choose between them. I just leave on the table the thought that perhaps the Government might think again about how they proselytize for a sector in which they clearly believe. We all think that it does a good job, yet we are going to leave it to suffer the scourges of competition from whomever it is and from every quarter of the globe, which seems a little unfair. Perhaps that can be thought about again.
	On upgrading the many years of records of friendly societies going back many centuries, many of them are probably on velum and therefore very difficult to transfer, which I understand. Again, it seems a little unfair that this cannot be given a little bit of priority. The Committee debates in the other place were redolent of support for this idea. Clearly, progress is being made, which we welcome. New listings and registrations will be online and therefore available. On those bases, I think that the level playing field is sufficient and we will just have to wait for that to come through. With that, I beg leave to withdraw the amendment.
	Amendment 190ZZA withdrawn.
	Amendments 190ZZB and 190ZZC not moved.
	Clause 47 agreed.
	Clause 48 : Further provision that may be included in orders under section 47
	Amendments 190ZA to 190ZC
	 Moved by Lord Sassoon
	190ZA: Clause 48, page 131, line 47, leave out subsection (3)
	190ZB: Clause 48, page 132, line 7, leave out "subsections (2) and (3)" and insert "subsection (2)"
	190ZC: Clause 48, page 132, line 12, leave out "or (3)"
	Amendments 190ZA to 190ZC agreed.
	Amendment 190ZCA not moved.
	Clause 48, as amended, agreed.
	Amendment 190ZD
	 Moved by Lord Sassoon
	190ZD: After Clause 48, insert the following new Clause-
	"Power to apply or disapply provision made by or under FSMA 2000
	(1) The Treasury may by order provide-
	(a) for any relevant provision that would not otherwise apply in relation to transferred functions to apply in relation to those functions with such modifications as may be specified;
	(b) for any relevant provision that would otherwise apply in relation to transferred functions not to apply in relation to them or to apply with such modifications as may be specified.
	(2) "Relevant provision" means a provision of, or made under, FSMA 2000.
	(3) "Transferred function" means a function that has been or is being transferred by an order under section 47; and section 48(4) applies for the purpose of this subsection."
	Amendment 190ZD agreed.
	Clauses 49 to 56 agreed.
	House resumed.

House adjourned at 9.23 pm.